Handelsbanken: – This allows for a sharp rise in interest rates

On Wednesday, the Federal Reserve held its much-discussed interest rate meeting. It was decided that the support purchase scheme will be sharply reduced, at the same time that the price of the main US policy will be raised after the end of the support purchase.

Haukete letter

Marius Gunsholt Hof, head of analysis at Handelsbanken, thinks this was an upbeat Fed rate announcement.

“The pace of reducing paper purchases (QE) is doubling, which means that the purchases have been completed by February. This gives the Fed more flexibility to raise interest rates,” Gunsholt Hof wrote in an update.

He does not rule out that the first rate hike will come as early as March.

Handelsbanken thinks there has been a clear shift in the Federal Reserve, which is now more concerned about inflation. Core inflation forecasts have been revised well for both this year and next, and the term “temporary” has already been scrapped.

“We should also note that in the same period, the Federal Reserve lowered unemployment estimates. This allows for a sharp rise in interest rates. The new median forecasts show that they are now envisioning three rate increases next year. A clear upward adjustment from the previous, where expectations barely showed an increase One in 2022,” the head of the analysis department writes.

The FOMC assumes there will be three more interest rate increases in 2023, and then two in 2024.

stock market rise

The news however led to a strong rally on the New York Stock Exchange. The broad S&P 500 index increased 1.6 percent, the Dow Jones increased 1.1 percent, while the technology-heavy Nasdaq increased 2.2 percent.

DNB Markets believes the market reaction has been surprising.

“Before the Fed meeting, the stock market was nervous, especially in the US, but it took a full turn yesterday. Stocks in sectors particularly sensitive to the discount rate hike are making a real comeback,” DNB Markets wrote in an update.