Rabobank Reports Federal Reserve’s Interest Rate Hike by 25 Basis Points in the FOMC Meeting

03/24/2023 18:27 • Digital Disruptors • 115 views

According to reports, Rabobank believes that the Federal Open Market Committee (FOMC) unanimously decided yesterday to raise the federal funds interest rate target range by 25 basis points from 4.50-4.75% to 4.75-5.00%. Rabobank economists rejected their expectations of a 25 basis point interest rate hike in June. however, They still believe that the Federal Reserve will maintain interest rates unchanged for the rest of the year: “Next, the FOMC does not want to raise interest rates too much, and it is expected that only another 25 basis points will be added this year. The FOMC expects that tightening bank credit will complete the rest of the central bank’s anti inflation work. You can realize in the Fed Chairman Powell’s Q&A session that credit tightening is the Fed’s new monetary policy tool. We have lowered our forecast for the target range of the federal funds interest rate from 5.25-5.50% to 5.00-5.25%, and it is expected that only another 25 basis points will be added once. We firmly believe that “Hold the forecast that FOMC will not turn this year.”

Rabobank: The Federal Reserve may raise interest rates by 25 basis points in May and keep them unchanged

The Federal Open Market Committee (FOMC) meeting was held yesterday and reports claim that the committee has unanimously decided to raise the federal funds interest rate target range by 25 basis points from 4.50-4.75% to 4.75-5.00%. The decision comes as no surprise as the market was already anticipating a rate hike. The decision was made amid rising concerns of inflationary pressures building up in the US economy.

Rabobank’s Take on the Interest Rate Hike

Rabobank economists had earlier predicted a 25 basis point interest rate hike in June but were proven wrong when the FOMC decided to wait. However, they still believe that the Federal Reserve will maintain interest rates unchanged for the rest of the year. According to Rabobank, the FOMC does not want to raise interest rates too much and it is expected that only another 25 basis points will be added this year. It is also expected that tightening bank credit will complete the rest of the central bank’s anti-inflation work.

Fed Chairman Powell’s Stance on Credit Tightening

In the Q&A session, Fed Chairman Powell mentioned that credit tightening is the Fed’s new monetary policy tool. Following this, Rabobank has lowered its forecast for the target range of the federal funds interest rate from 5.25-5.50% to 5.00-5.25%. They firmly believe that there will not be another interest rate hike this year.

Conclusion

The Federal Reserve’s decision to raise the interest rates was not unexpected as the market had already priced it in. Rabobank’s forecast of the FOMC maintaining interest rates relatively unchanged for the remainder of the year seems possible as the FOMC does not want to raise interest rates too much due to concerns of inflation.

FAQs

1. What is the federal funds interest rate target range?
The federal funds interest rate target range is the interest rate range at which banks lend reserve balances to each other overnight.
2. How does a rise in interest rates affect inflation?
Raising interest rates increases the cost of borrowing and reduces demand for credit. This reduces lending and investment, which, in turn, slows down economic growth and demand which helps curtail inflation.
3. Why is the FOMC concerned about inflation?
Inflation erodes the purchasing power of money and reduces the value of assets held by individuals and companies. The FOMC aims to maintain a stable price level as a key component of its mandate to promote sustainable economic growth.

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