US rate hike is considered safe

A renewed increase in US key interest rates is firmly planned on the financial markets, but investors are eagerly awaiting indications from the Federal Reserve Bank for further monetary policy.

Analysts expect the monetary authorities to announce an interest rate increase of 0.25 percentage points in the evening (8:00 pm CET) to between 2.00 percent and 2.25 percent. “In the context of the interest rate decision, no surprises are to be expected,” says about in the outlook of Postbank economist Lucas Kramer. The anger of Donald Trump is likely to continue to increase – the US President fears that the central bank “stifles” its economic recovery.

Since the Fed began to normalize its massively relaxed monetary policy in late 2015, interest rates have already been raised by 0.25 percentage points seven times each. Most recently, key interest rates rose to 1.75 to 2.00 percent in June – the highest level in ten years. The eighth interest rate step is considered a foregone conclusion on the stock markets in view of the booming US economy. The Fed is trading at a much firmer pace than the European Central Bank, whose key interest rate for the eurozone remains at zero percent.

Instead of the interest rate decision this time, the further expectations of the US Federal Reserve Bank are in the focus. The quarterly estimates of economic growth and the development of the labor market and inflation are considered important signals for the further course of interest rate policy. Things could change here, says expert Christiane von Berg from BayernLB. For example, the brisk economic outlook, which would increase the likelihood of swift interest rates, is well-suited to the strong push from the tax reform.

“However, we continue to assume that the ongoing trade conflict will slow economic growth slowly from mid-2019, and predict two interest rate cuts this and only two more interest rate hikes next year,” says the analysis of the BayernLB expert. The markets are currently particularly concerned with the extent to which the Fed is raising US interest rates in their current increase cycle. Most financial professionals expect the summit to reach 3.0 percent.

For investors and economies worldwide, decisions can have a significant impact. Although the Fed has been very cautious in tightening its monetary policy so far, rising interest rates in the US and a stronger dollar have led to an increase in the return of capital from emerging markets to the US. At times this has already caused severe currency turbulence in some countries. Even US President Trump, higher interest rates are a thorn in the side. Concerned that the economic boom could be slowed down, he has repeatedly publicly criticized the Fed.

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