Fed decides on interest and expectation is a rise in rate

O central bank closes the two-day meeting this wednesday and the market consensus anticipates an increase in interest rates to contain inflation that, month after month, registers values above the goal of the us monetary regulator.

Jenny Zeng, director of Global Investment in Bonds at AllianzGI, anticipates an increase of 25 basis points in the interest rate, considering that “while the broader macroeconomic scenario continues to point to higher interest rates, the consumer price index (IPC) of August, stronger than expected, seems to have eliminated any justification to wait.”.

The analyst points out, in an analysis note, that support for additional monetary tightening is also growing within the Federal Open Market Committee (FOMC), with three dissidents already registered in July.

To Paolo Zanghieri, senior economist of Generali Investments, August inflation data also strongly tilted the balance in favor of an interest increase by the Fed on Wednesday, said in an analysis note.

David Rees, Head of Global Economics of Schroders, pointed out that as long as the Fed does not start to raise interest rates, “markets will continue to question their credibility, as well as the willingness or ability of the Treasury to limit bond yields.”.

The Fed can opt for an increase in interest at this meeting and “a controlled rise in US short-term financing costs, or do nothing and run the risk of an uncontrolled rise in long-term financing costs,” he warned, in an analysis.

Inflation has hovered over the central bank's interest rate policy over the year, with the rate rising by over 3%, driven by the US war with Iran and its impact on world oil supply.

The conflict practically paralysed the Strait of Ormuz, where one fifth of world oil passed before the outbreak of hostilities in February.

The rise in oil prices triggered the price of gasoline and diesel, affecting the budget of families both directly, in fuels, and indirectly, when incarcerated the transport of goods.

The Fed has kept the interest rate unchanged while monitoring inflation, which is above its 2% target, but Wall Street expects there to be at least one increase in the rate by the end of the year.

Higher rates would make credit more difficult to obtain and slow down economic growth, which could cool inflation.

However, the Fed also faces pressure from President Donald Trump, who wants the central bank to reduce interest, which could boost the economy, but also aggravate inflation.