Last time, the Fed raised the policy rate to a range of 3.75–4.00 percent. The rate will remain at that level, at least for a while longer. By a vote of 10–2, the board opted against an increase despite high inflation, which is putting increasing pressure on American households.
However, two members wanted to see a 0.25 percentage point increase. One of them, Lisa Cook, has been involved in a personal battle with President Donald Trump.
We had expected two people to vote for an increase, but they weren't exactly the people we expected, says Elisabeth Kopelman, US economist at SEB.
Inflation too high
At the press conference after the rate announcement, Fed Chairman Kevin Warsh once again emphasized that inflation is too high, but said that “more information” would help chart the way forward.
Market pricing suggests three more increases: one in December, another in March and then another this summer, says Elisabeth Kopelman.
It is perhaps a little more aggressive than what the Fed itself has signaled and somewhat more than what we have in our forecast.
A crucial factor for the Fed is how energy prices develop. The price of crude oil has risen again, and a barrel of Brent crude is trading at around $115.
It is clear that the longer energy prices remain high, the greater the pressure will be on the Fed to raise interest rates further, says Kopelman.
ECB more important
Wednesday's Fed statement will be closely followed by an interest rate announcement from the European Central Bank (ECB), and next week it will be the Swedish Central Bank's turn. For Erik Thedéen and the Swedish Central Bank, the ECB's announcement is more important than the Fed's, Kopelman points out:
"If you look at the Swedish Central Bank, you can say that it should not be in as much of a hurry as other central banks to raise the key interest rate, since we do not have the same inflation problem. It still seems that the Swedish Central Bank is worried about interest rate increases around the world," she says.
