As expected, the US central bank Federal Reserve (Fed) leaves the key interest rate unchanged in the range of 5.25–5.50 percent.
Nordnet’s savings economist Frida Bratt about when the first reduction may come and why we in Sweden are affected by the announcement.
Inflation is still a problem in the US. While in Europe and Sweden you see a steadily reduced inflation, the fight against inflation in the USA is currently floundering. The American economy is going strong and unemployment is low. It is actually something positive, but it means that the economy is running at full speed and that the risk of persistent inflation remains. An interest rate cut, which stimulates the economy further, was therefore not on the map at the time of this interest rate announcement. Instead, the US central bank keeps interest rates at a high level to further try to curb inflation.
When can the first interest rate cut come?
It is by no means written in stone. At the beginning of the year, the market believed in 6-7 interest rate cuts from the American central bank this year alone. Now there has been an enormously rapid readjustment of these expectations, and it is rather one to two interest rate cuts this year that are expected. Many believe that a reduction can only come in November this year.
The Fed was the first to fight inflation, but seems to be the last to get out. Banks such as the ECB and the Riksbank are expected to lower interest rates before the Fed does.
Why is this something a Swede should care about?
What the US central bank, the Fed, does actually ultimately controls quite a bit of our personal finances. Our savings are affected, because the mood on the Stockholm Stock Exchange is affected by the global stock market mood – and the Fed has that completely in its hands. The stock market likes to see low interest rates, then it feels good, while high interest rates are disliked. But the interest rate market is also affected. Global market interest rates are controlled by what the Fed does, and these in turn control banks’ funding costs for mortgages with longer maturities. A guess is therefore that interest rates on mortgages with longer fixed periods may tick up, while variable interest rates are more affected by what the Riksbank does – and a reduction is still expected there in May or possibly June.