For the third time this year, the US Federal Reserve Board raised its key rate: what’s next?

For the third time in 2018, the US Federal Reserve System raises the key rate - now it is in the 2-2,25% range. The market is waiting for the continuation of the course to tighten monetary policy in the coming year.

Фото: Depositphotos

On Wednesday, 26 September, the Federal Open Market Committee (FOMC) of the US Federal Reserve decided to raise the key rate by 0,25 ppt to 2-2,25%. This was the third key rate increase in the 2018 year undertaken by a US regulator, notes RBC.

The FOMC release says that since the last committee meeting in August, macroeconomic statistics show that the labor market continues to strengthen, and economic activity is steadily growing. The unemployment rate remained low, the number of jobs grew, as did household spending and investment in fixed assets. Annual inflation kept close to the target in 2%.

The FOMC believes that a further gradual increase in the rate will correspond to the goals of “sustainable expansion of economic activity”, a stable labor market and inflation in 2%.

Perhaps a fourth boost

The increase was expected for the market - its probability, based on the quotations of futures for the federal funds rate, was estimated at 95%. According to statistics, the unemployment rate is now 3,9% (the minimum level since 1969 of the year); in August, the number of jobs increased by 201 thousand (higher than expected).

Thus, now the size of the key rate is the maximum since March 2008 of the year. At the same time, there is a high probability that this is not the last increase, and the range of the key rate will increase in December. In mid-September, one of the most consistent supporters of a softer credit policy, the head of the Federal Reserve Bank of Chicago, Charles Evans, said that macroeconomic indicators were so strong that he would not be surprised if the rate for the year will be increased four times.

In June, the “scatter chart” of the FOMC members showed that opinions on the future movement of the stakes were divided - five participants in the meeting suggested a rate increase for the year three times, eight in favor of four or more raises.

Judging by the Fed's expectations, monetary tightening should continue in the 2019-2020 years. The median rate forecast from the regulator for 2020 year is 3,4%, while the Fed estimates the neutral rate level (which does not stimulate and does not have a restraining effect on the economy) at 2,9%.

Trump "not happy"

The Fed line on raising the rate has repeatedly criticized the US president.

In July, Donald Trump said that he was “not thrilled” with the rate hike, which, in his opinion, is contrary to the policy of stimulating economic growth pursued by the authorities. And at the end of August, at a closed meeting with sponsors of the Republican Party, the president stated that he hoped when he nominated Fed President Jerome Powell for the post of Fed Chairman that he would support the policy of affordable money and maintain a low interest rate.

However, a few days later, Powell, speaking at the banking forum in Jackson Hole, stressed that the gradual rate hike is most appropriate for the current economic situation.

Expectations from the US regulator (one more rate increase before the end of the year and at least two next year) are already embedded in current prices, says the main analyst at BCS Premier Anton Pokatovich. According to him, before the end of the week, currencies of countries with emerging markets, including the ruble, which has somewhat slowed the pace of recovery since the beginning of the week, may return to strengthening.

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