Powell's Rate Signal Influences Swedish Households Too

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Powell's Rate Signal Influences Swedish Households Too
Photo: Amber Baesler/AP

A rate cut is in the cards, but what the American central bank says about the future can have a major impact also on Swedish households. The Stockholm stock exchange reflects much more how things look in the surrounding world than in the Swedish economy, says Maria Landeborn at Danske Bank.

The weak labor market opens the door for the American central bank to lower the interest rate on Wednesday. The American central bank differs from many other central banks as it, in addition to the inflation target, also has an employment target.

Now the risks that they will miss their employment target are increasing, and then they need to lower the interest rate, says Maria Landeborn, Danske Bank's senior strategist, who believes in several interest rate cuts from the central bank.

Direction important

The market prices in a probability of over 90 percent of an interest rate cut of 25 points on Wednesday. Nordea's chief analyst Torbjörn Isaksson says that the market will instead look more closely at the central bank's updated interest rate path.

It is rather more important than the message itself.

Maria Landeborn says that if the central bank signals a easier monetary policy and shows confidence to succeed with a soft landing for the economy, it can give a boost to the stock exchanges. She notes that the Stockholm stock exchange to a large extent consists of export companies that are dependent on the growth of the surrounding world.

If it's slow in the surrounding world, we're not an island that can get through unscathed.

Riksbank's message

Both economists say that the Fed's interest rate message will not have any major impact on the Swedish Central Bank's decision, but that a easier monetary policy on the other side of the Atlantic could improve the mood here as well.

It's clear that if the Fed is on its way to lowering the interest rate quickly, then it becomes an environment where it becomes easier for the Swedish Central Bank to lower the interest rate as well. I don't think it will tip over to the Swedish Central Bank lowering the interest rate, but it's clear that it affects it in that direction, says Torbjörn Isaksson.

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By TTEnglish edition by Sweden Herald, adapted for our readers

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