Raising interest rates is considered the biggest enemy of financial markets, companies and the economy in general, and central banks in the world pay great attention before making any decisions in this field, especially with any increase in interest, as this may lead to some damage to the economy.
With regard to the US Federal Reserve, after the recent increase, by 50 basis points, the target range for the main interest rate is at 4.25-4.50 percent, and the important question is whether the US economy can bear these interest rates under the current conditions and whether companies can continue to achieve the goals they set ?
With regard to real estate, we have seen the effect of raising interest rates on house prices after the decline in prices, especially since mortgage rates play a major role in the field of demand and thus affect prices. The average price of a 30-year mortgage contract rose to its highest level since 2008. It also recorded an increase of more than 100 percent from last year with the interest rate hike by the Federal Reserve.
As for consumer spending, which represents more than 70 percent of US economic activity, interest rates on credit cards also affect consumer behavior and thus demand, especially in products related to luxury and luxuries.
Unemployment rates remain the least affected by the Federal Reserve’s minutes, decisions, and interest hike, and it shines at 3.7 percent. On the other hand, we see news coming from major international banks such as Goldman Sachs, which will cut 40 percent of bonuses this year.
With regard to the impact of raising interest rates on the markets, and during the rate hike trip this year, the Dow Jones index managed to avoid at times the damages of the Federal Reserve’s decisions, and so far it has recorded declines of more than 8.5 percent since the beginning of the year, and it deals with a key interest rate of 4.50 percent.
It is expected that the Federal Reserve will reduce the pace of hikes in the next year, and we will see control over inflation in the second half, unless there are global developments that lead to significant changes in the field of price hikes.
What is certain is that the sharp fluctuations in the markets will continue from one session to the next, and with it the reports of major international banks about the market’s direction and its reaching the bottom.