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Expert: Monetary Policy Exclamation Mark from Fed

The American central bank Fed's double cut of the interest rate by 0.5 percentage points is a welcome message for the USA, the world, and Sweden, according to analyst Robert Bergqvist.

» Published: September 18 2024

Expert: Monetary Policy Exclamation Mark from Fed
Photo: Jessica Gow/TT

Bergqvist, senior analyst at SEB, describes the Fed's message as a monetary policy exclamation mark.

Here, they are showing very clearly that they want to lower the interest rate, normally interest rate cuts are 0.25 percentage points. They confirm that they want to lower the interest rate quickly and are prepared to take 0.5 percentage points, which is a big step to take.

A normal key interest rate in the USA should be around 3 percent, so the current rate of around 5 percent after today's message is still very high, he notes.

The fact that the Fed is now daring to take the big step is because they feel secure that inflation is under better control.

This means they can lower the interest rate to help the labor market and growth.

Strengthening the krona

The interest rate cut is also good news for the rest of the world, whose economy largely revolves around the USA's, according to Bergqvist.

The fact that the Fed dares to deliver a monetary policy exclamation mark means that other central banks may also dare to take a bigger step, and that may also apply to the Swedish Central Bank.

Bergqvist does not see the unexpectedly large cut as a sign that the USA's economy is about to slow down faster than expected, which some analysts have worried about.

I don't think I see things in the USA's economy that suggest a rapid slowdown. We don't need to speculate about economic ghosts.

The fact that the US dollar will lose value in the future means that the Swedish krona will strengthen.

I hope for a more normally valued krona. The step the USA takes today reduces the risk for Sweden.

A fearless central bank

The Fed is not afraid that the large cut may be seen as a crisis signal and that the Fed may be considered to be lagging behind with its cuts, notes Frida Bratt, a savings economist at Nordnet.

"The Fed needs to surround the message with calm confidence that they have control of the situation," she writes in a comment via email to TT.

Swedes are affected by the Fed's message through the stock market's reactions and ultimately through the interest rates on mortgages, adds Bratt.

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By TTThis article has been altered and translated by Sweden Herald
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