More interest rate hikes likely this year as Fed seeks to tame inflation

The US Federal Reserve is likely to raise interest rates again after handing out this week the biggest increase in nearly three decades in a bid to tame record inflation, according to the latest analysis. 

The Fed rolled out a 75-basis-point hike in its benchmark rate on Wednesday, prompting states in the Gulf Cooperation Council (GCC), including the UAE, Saudi Arabia, Bahrain and Qatar, to adjust their key rates. The largest rate hike since 1994 is seen to further slow the economy and increase recession risks. 

In its latest analysis, Moody’s said the Fed “is clearly planning on hiking rates more aggressively” in 2022 than what it assumed in the June baseline. 

It said the new forecast will be a rate hike of 50 basis points at Fed’s July and September meetings, followed by a 25-basis-point rate hike in November and December, resulting in a cumulative hike of 150 basis points by the end of the year. 

The ratings agency also noted that the outlook for the rest of 2022 and the upcoming year is turning “less rosy”, citing that tightening conditions in the financial markets will have economic costs. 

“The takeaway is that the Fed is going to keep hiking rates, well past the neutral rate, in an effort to return inflation to its 2 percent objective,” Moody’s said. 

“The issue is that … [the Fed’s] confidence in engineering a soft landing has declined. It won’t say this publicly, but frontloading rate hikes makes it difficult to calibrate monetary policy in the future, and the central bank won’t know what it was too aggressive until it is too late.”

By next year, the Fed is expected to adjust target policy rates by 25 basis points at each of the first two meetings. This will put the terminal fed funds rate at 3.5 percent, less than the median projection, Moody’s said. 

Central banks in the UAE, Bahrain and Qatar announced his week that they are also adjusting their key rates by 75 basis points. However, Saudi Arabia opted for an adjustment of 50 basis points. 

 

Source: https://www.zawya.com/en/economy/global/more-interest-rate-hikes-likely-this-year-as-fed-seeks-to-tame-inflation-nbdvfvv1

 

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