Fed Likely to Pause Rate Hikes, Weakening the U.S. Dollar
2023.06.13 09:04
The US Federal Reserve’s interest rate in May was the tenth consecutive increase in 14 months. In this tightening cycle, the Fed rate has thus increased from 0-0.25% to 5-5.25% – the highest level since 2006. The high credit burden on Americans, the recent banking crisis, and declining inflation will likely force the US Federal Reserve to pause – thereby marking the end of the monetary tightening cycle.
The increase in interest rates has led to a banking crisis and a sharp rise in mortgage interest rates, which has contributed to a local fall in stock markets and a sharp fall in home sales. In addition, loan repayments are back, which could be a severe obstacle to further growth in consumer demand. All these factors suggest that in addition to the deterrent effect, the regulator’s actions have created a situation where the market can no longer afford higher borrowing rates.
Nevertheless, the regulator has achieved its primary goal of cutting consumer inflation in half over the past year, from 9.06% in June 2022 to 4.93% in May 2023. In other words, a 5% rate hike has resulted in a 4% reduction in consumer inflation. To assess the effect on the economy, the regulator has to pause because the economy is running with a lag of 1-3 months.
All this news is already affecting the , which has weakened since early June and this week. The FOMC is going to have a meeting where they take into account the high credit burden and the declining inflation, not raise the interest rate and keep it in the 5.0% -5.25 % range. The market will likely take this news positively, thus pushing the USD into the abyss in and currency pairs.
