The news came that the market is closely continuing. For the first time since 2018, the Federal Reserve has raised the policy rate by 25 basis points to the 0.25 to 0.50 percent range.
Every three months, 17 Fed officials make long-term forecasts of US unemployment, inflation, economic growth and interest rates over the next three years. St. Louis Fed President Bullard voted in favor of raising 50 basis points.
Unemployment rate estimates have not changed
Federal Reserve officials have not changed their unemployment expectations for this year and next year.
According to the Federal Reserve’s Economic Forecast Report, unemployment forecasts were only 3.5% this year and next. The 2024 forecast was raised from 3.5% to 3.6%, but the long-term unemployment forecast remained at 4.0%.
As of February, the US unemployment rate was announced at 3.8%. The unemployment rate reached a historic peak of 14.7% in April 2020, when the impact of COVID-19 peaked.
What were your expectations in the market?
Professor Dr. SeferŞener used the following statement to milliyet.com.tr shortly before the decision. While the market is clearly waiting for interest rates to rise, the issue he includes in the decision text is not the rise in interest rates, in other words, the size reached in the asset purchase, whether or not the balance sheet is adjusted. How you evaluate it is important.
The balance sheet and parts related to asset purchases will be revised upon announcement. At the same time, a total of seven rate hikes are expected this year, reaching 4% by the end of the year. If inflation is above 7%, this is sufficient in the medium term. Interest rates are expected to rise in 2023 as well.
What happens to CBRT’s interest determination?
On the other hand, considering this decision by the European Central Bank and the Central Bank of the Republic of Turkey, various scenarios may emerge in the next period.
Given the current situation, it seems unlikely that CBRT will reduce or raise interest rates tomorrow. Almost 90% of the market is made up of expectations that central banks will pass. However, 5% is expected to raise interest rates and 5% is expected to fall. The probability of passing with a high probability is currently being bought in the market. “
“The future path is uncertain.”
Economist Ember Ercan evaluated this issue as follows: During Russia’s invasion of Ukraine, geopolitical and macroeconomic concerns made the path of progress somewhat uncertain. Long-term supply chain crises cause inflation, but the energy-input gap created by the new dynamics means both positive inflation and a slowdown in the economic growth cycle. Supply chain bottlenecks are exacerbating again, and input costs and home prices continue to rise.
In any case, at this stage, the policymaker’s response to the Ukrainian war remains an important factor in uncertainty. Of course, growth factors, sanctions, and the impact of war vary by region and country, and are less dependent on energy, putting the United States in a position to rely more on its own indicators. After all, the economy seemed strong enough before Russia invaded Ukraine. Moreover, just as inflation soars, inflation carries the risk of growing demand, and households may decide to rethink their budgets and reduce discretionary spending.