US slows rate hikes for the first time in 2022

The Fed (Federal Reserve, the US central bank) raised this Wednesday (14) its interest rate for the seventh time in 2022, but the increase of 0.50 percentage points was lower than those applied in the last four meetings of the its monetary policy committee, which were 0.75 points.

As a result, the reference rate in the United States advances to a level of 4.25% and 4.5% per annum. This value is in line with what was expected by market analysts consulted by the Bloomberg agency.

The less aggressive rise in interest rates confirms the expectation that the members of the Fomc, the acronym for the Fed’s open market committee, consider that the tightening of credit is achieving the purpose of curbing the rise in prices.

Since the current cycle of interest rate hikes began at the beginning of this year, this is the first time that the Fomc opts for an increase lower than that given at the immediately previous meeting. Before the last four increases of 0.75 points, the committee had applied an increase of 0.25 in March and 0.50 in May.

“Today’s announcement marks a slowdown in interest rate hikes in the US,” commented Celso Pereira, director of investments at Nomad.

“Among the factors that supported a milder increase in interest rates are the slowdown in inflation in November in the US and the fear of a recession in the world’s largest economy in 2023,” said Pereira.

The day before, the government’s monthly survey showed that inflation registered in November in the country was below expectations. There was an average increase of 0.1% in prices, below the forecast of 0.3% expected by economists.

In the 12 months through November, the Index rose 7.1%, the lowest rate since December 2021, showing a slowdown from the 7.7% rise seen in October.

Beto Saadia, economist and partner at BRA BS, assesses that the CPI, the American consumer inflation index, left optimistic markets for a more lenient stance by the Fed. But he warns that there are still two fundamental conditions to declare victory in the fight against inflation.

“The first is that the convergence of inflation must be anchored in the 2% target, which is still far beyond the current target. The second is the great villain of inflation that continues to show no signs of being defeated: the labor market is still too tight,” he said.

“There are more job openings than available workers, resulting in wage inflation that may at some point accelerate the inflation of goods and services again,” added Saadia.

Lesser inflationary pressure increases the chances that the Federal Reserve will continue to reduce the pace of interest rate hikes, as it did at this meeting, bringing relief to the stock market, which now faces less competition from US fixed income.