Expectations for a higher rise in interest rates by part of the Federal Reserve (Fed) at this month’s meeting they are on the rise.
After the publication this Wednesday of the inflation data annualized in the United States for the month of June (9.1%), which was higher than expected, and also the producer price index (11.3%), the market has begun to assume that the Federal Reserve will be raising interest rates by 100 basis points for this July.
Jerome Powell, the president of the Fed, had anticipated that by July they could raise the interest rate between 50 and 75 points.
According to calculations by the Refinitiv platform, 54.2% of analysts estimate that the Fed will raise 100 basis points, while 45.8% believe that it will do so by 75 basis points.
“In the United States, a labor market that has been considerably strong, that is, with a fairly low unemployment rate and this accompanied by the inflation data, what it means is that with respect to the objectives that the Federal Reserve has, there is a deviation especially in the price component and that continues to pressure the entity to raise interest rates”, explained Carolina Monzón, manager of Economic Research for Itaú Colombia.
Although from this entity they estimate that the Federal Reserve will raise its rates by 75 basis points this month, “with the publication of the CPI we are reevaluating our position”, while the confidence indicator from the University of Michigan.
Sergio Taborda, international economist at Banco de Bogotá’s Economic Research, pointed out that the movements of the implicit rate for the July meeting reached a maximum of more than 94 basis points, This slowed down to more than 82 basis points, which in his opinion represented an implied probability of 29% for a rise of 100 basis points in the July 27 quote.
However, Taborda believes a 100 basis point hike is unlikely at this point.
“Under this scenario, a rate hike of +100 basis points in July seems unlikely and Banco de Bogotá’s Economic Research maintains an expectation of 75 basis points.”noted the international economist.
Quoted by the Bloomberg agency, the economists at Nomura Securities International are those who expect an increase of 100 basis points at the meeting at the end of June.
“The data suggests that the Fed’s inflation problem has worsened, and we expect policymakers to react by accelerating the pace of rate hikes to bolster their credibility,” they commented in a note.
Looking to the future, the market is considering that the aggressive policy of the Federal Reserve be relaxed for the first quarter of next year, but for this it seeks to have a strong enough interest rate.
“The desire of the Federal Reserve is to have a rate high enough to allow it to make rate cuts precisely to try to revitalize what already seems clear, which is a significant slowdown in US activity that may end in a recession,” said Diego Camacho, international economist at Credicorp Capital.
Camacho considers, given the impacts in the world, that the Federal Reserve begins to relax its policy with interest rates in September.
ROBERTO CASAS LUGO