US stock price rises 9% annually after 12 interest rate hikes
Federal Reserve Chairman Jerome Powell [AFP=연합뉴스 자료사진]
(Seoul = Yonhap News) Reporter Yun-gu Kim = Ahead of the U.S. Federal Open Market Committee (FOMC) meeting to be held from the 25th to the 26th, the market is raising the possibility of raising the key interest rate five times or more within the year.
Goldman Sachs, who had predicted that the US Federal Reserve would raise interest rates four times this year, predicted that the pace of rate hikes by the Fed could be faster than their previous expectations due to steep inflation.
According to Bloomberg News and CNBC on the 23rd (local time), Goldman Sachs economists predict that the base rate will rise four times in March, June, September and December, and the Fed announces the start of its balance sheet contraction in July. said.
However, they predicted that inflationary pressures could push the Fed to tighten more aggressively.
“There is a risk that the FOMC will want some austerity measures at every meeting until inflation conditions change,” Goldman Sachs said. It was predicted that there could be more.
The market is predominantly predicting that the Fed will signal a rate hike in March. If interest rates rise at this rate, this will be the first increase since December 2018.
Traders see a 95% chance of a rate hike at the March meeting, according to the Chicago Mercantile Exchange (CME) FedWatch, which estimates the probability of a monetary policy change based on the price of Federal Funds (FF) interest rate futures. Also, there is an 85% chance of four hikes this year.
However, the market is now expecting five more hikes, CNBC reported.
The probability of five rate hikes this year has risen to 60%, according to CME’s FedWatch report.
Earlier this year, JPMorgan Chase chief executive Jamie Dimon said the Fed could raise rates up to seven times this year.
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[AP=연합뉴스 자료사진]
The Wall Street Journal (WSJ) noted that inflation could speed up the Fed’s rate hikes and make predictions about it difficult.
Deutsche Bank chief US economist Matthew Lucetti also predicted, similar to Goldman Sachs, that if inflation is too high, the Fed may have to raise rates at every meeting. The FOMC is held approximately every six weeks.
According to the WSJ, there are two big questions facing the Fed. How much will inflation go down in the first half of this year? And what if inflation didn’t fall far enough?
“If the Fed thinks inflation is still high, it will raise rates much faster,” said William English, a Yale University professor.
Cleveland Fed President Loretta Mester said in a recent interview that the pace of rate hikes will depend on economic conditions, making it difficult to predict the Fed’s actions.
Meanwhile, Bloomberg noted that US stocks have strengthened historically when the Fed has raised interest rates.
According to the Truist Advisory Service, the Standard & Poor’s 500 Index rose by an average of 9% annually during the 12 periods when the US benchmark interest rate rose since the 1950s. As the economy grew, corporate profits increased, supporting the stock market.
In all, the stock price rose during 11 interest rate hikes. The only exception was 1972-1974, which coincided with the 1973-1975 recession.
Even during the most recent period of rate hikes from 2015 to 2018, the S&P 500 rose at an average annual rate of 8.4%.
According to Bloomberg, the US stock market is expected to be higher this year than at the beginning of the year, if past practices continue.
Analysts expect the S&P 500 to hit 4,982 by the end of this year, according to Bloomberg tally. This is about 13% higher than the closing price on the 21st.
ykim@yna.co.kr
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2022/01/24 11:15 Send
