The Fed Open Market Committee (FOMC) increased the federal funding rate by 75 basis points, in line with expectations, to the 3.00-3.25 percent band, the highest level since 2008. While the members' projections for the next period point to higher unemployment and slow economic growth, they revealed that inflation will only return to the Fed's 2 percent target in 2025.
Officials' median expectations for the federal funding rate were 4.4 percent for year-end and 4.6 percent for 2023. This showed that the Bank will continue to increase its aggressive interest rates by at least 125 basis points in the meetings to be held in November and December. With the updated projections pointing to 2024 for the beginning of the interest rate cut, the expectations that the first move in this direction could be made next year have been shelved for now.
“We need to ensure price stability”
Making evaluations after the decision, Fed Chairman Jerome Powell said that the Bank is firmly committed to reducing inflation to its 2 percent target and that they will fight until it is achieved. Stressing that reducing inflation would be painful, Powell said, "We need to maintain price stability, otherwise we will suffer more later. I wish there was a painless way to do this, but there isn't. What we need is meaningful downward pressure on inflation. We want to see that." used the phrases. Pointing out that future rate hikes will depend on the data to be announced, Powell noted that they will continue to make decisions from meeting to meeting.
After the developments, the probability that the Fed will increase interest rates by 75 basis points next month in money market pricing increased to 69 percent, while the outflows from the bond market accelerated. The US 10-year bond yield stabilized at 3.55 percent after seeing the highest level since February 2011 with 3.62 percent. The US 2-year bond yield also tested 4.14 percent for the first time since October 2007. With the strengthening of the demand for the dollar, the pressure on the currencies of other countries increased, while the dollar index continued to rise and reached the highest level of 20 years with 111.8. With these developments, a negative trend was observed in the New York stock market yesterday. While the Dow Jones and S&P 500 indexes fell by 1.7 percent and the Nasdaq index decreased by 1.8 percent to its lowest level in approximately 2.5 months,
Index futures contracts in Europe started the new day with a decrease of more than 1%
On the European side, while the measures taken against the energy crisis and the increasing geopolitical risks within the scope of the Russia-Ukraine war remain at the center of the agenda, the BoE's interest rate decision is expected today. While the bank is expected to raise the policy rate by 50 basis points to 2.25%, the possibility of an increase by 75 basis points is not ignored. The Bank's possible move of 75 basis points, which increased interest rates by 25 basis points each in February, March, May and June, and by 50 basis points in August, is shown as the biggest step in 33 years. While the European stock markets, which were closed before the Fed's interest rate decision, followed a positive trend, the DAX 40 index in Germany rose 0.76 percent, the CAC 40 index in France rose 0.87 percent and the FTSE 100 index in the UK rose 0.63 percent. Euro/dollar parity is 0, with the effect of the stronger dollar.
On the Asian side, the Bank of Japan (BoJ), which announced its decisions today, did not change the interest rates and monetary policy, and announced that it would gradually remove the special fund supply program that was put into use for the new type of coronavirus (Kovid-19) epidemic. Downside risks in growth due to the ongoing impact of the epidemic on the economy and the Russia-Ukraine war were cited as the reason for the BOJ's continued "pigeon" stance contrary to its peers, in the recent period when central banks around the globe implemented aggressively tight monetary policies. After the decision, the dollar/yen parity reached 145.4, the highest level in 24 years. The BOJ had previously carried out a rate check that heralded direct foreign exchange intervention after the dollar/yen parity tested 145.
While the US investment bank Goldman Sachs has lowered its growth expectations for China, with these developments, Shanghai composite index is 0.3 percent in China, Nikkei 225 index is 0.6 percent in Japan, and Hang Seng index is 0.6 percent in Hong Kong. 1.9 depreciated. Domestically, the BIST 100 index closed the day with a decrease of 0.97 percent at 3,245.76 points, due to the decreasing risk appetite globally and the ongoing selling pressure in banking stocks. Dollar/TL is traded at 18,3480 at the opening of the interbank market today, after closing at 18.3275 with an increase of 0.1 percent yesterday.
Today investors focused on the decision to come out of the BoE meeting.
Analysts stated that the Fed's projections for the next period cast a shadow over the expectations for a "soft landing" in the economy, and said that the signal that aggressive interest rate hikes would continue despite the increasing recession possibility caused the risk appetite to decrease globally. Analysts said that today investors are focusing on the decisions to come out of the BoE meeting, while domestically, the eyes are turned to the Central Bank of the Republic of Turkey (CBRT) interest rate decision. Analysts pointed out that the data agenda is also intense today, and stated that 3,200 points in the BIST 100 index are in the position of support and the level of 3,300 in the resistance position in technical terms.
Most of the economists surveyed by AA Finans expect the one-week repo rate (policy rate) to remain constant at 13 percent. On the other hand, 9 out of 29 economists who participated in the survey envisage a 100 basis point cut in the policy rate, and 1 foresee a 50 basis point cut.
The data to be followed in the markets today are as follows:
10.00 Turkey, September consumer confidence index
14.00 Turkey, CBRT's interest rate decision
14.00 England, BoE's interest rate decision
14.30 Turkey, weekly money and bank statistics
15.30 US, 2nd quarter current balance
15.30 US, weekly jobless claims
17.00 Eurozone, September consumer confidence index