U.S. stocks plummeted as investors feared a Fed rate hike, albeit belatedly. On the 21st (local time), all three major indexes in the New York Stock Exchange plunged more than 2%.
As a result, Wall Street’s attention is focused on the next move of the Fed.
Currently, the benchmark interest rate in the US is in the range of 4.5% to 4.75%.
First of all, many predict that the Fed will raise interest rates by 0.25 percentage point each at the Open Market Committee (FOMC) meetings to be held in March, May, and June.
Goldman Sachs, the world’s top investment bank, and Bank of America (BoA), a famous investment bank in the United States, predicted that the Fed would raise interest rates three more times in the future by 0.25 percentage points.
Goldman Sachs chief economist Jan Hartzus said in an interview with Bloomberg that day, “The Fed will raise interest rates by 0.75 percentage points over the next three times.”
“The possibility of an interest rate hike of 0.5 percentage points cannot be ruled out, but it is highly likely that interest rates will be raised by 0.25 percentage points in the three FOMC meetings,” he said.
In this case, the base interest rate in the US is in the range of 5.25% to 5.50%.
However, some believe that an interest rate hike of 0.5 percentage point may be carried out. St. Louis Fed President James Bullard, a representative hawk of the Fed, is strongly arguing that “a 0.5 percentage point rate hike should be carried out at the FOMC in March.”
In other words, after raising the interest rate by 0.5 percentage point, the extent of the rate hike should be determined based on future inflation indicators.
In this case, after raising interest rates by 0.5 percentage points, the interest rate hike campaign may be completed by raising interest rates by 0.25 percentage points once, or by raising interest rates by 0.25 percentage points twice in a row.
If interest rates are raised by 0.25 percentage points twice in a row, interest rates will rise by 1 percentage point, bringing the base interest rate in the US to the range of 5.5% to 5.75%.
Whether the Fed raises the interest rate by 0.5 percentage point and then only raises it by 0.25 percentage point once, or whether it will raise interest rates two times in a row by 0.25 percentage point depends on future inflation indicators. The Fed is expected to adjust the pace by monitoring inflation indicators.
Ultimately, the market believes that at the end of the year, the benchmark interest rate in the US will be in the range of 5.25% to 5.5% or 5.5% to 5.75%.
However, some predict that the US interest rate will soar to 6%.
Jamie Dimon, chairman of JP Morgan Chase, who is called the emperor of Wall Street, believes that the benchmark interest rate in the US will soar to 6% at the end of the year.
Former International Monetary Fund (IMF) chief economist Ken Rogoff also said in an interview with Bloomberg TV, “I wouldn’t be surprised if the US interest rate rises to 6%.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.