As planned, The US Federal Reserve (Fed) has raised interest rates again. The US central bank has opted this Wednesday for a further increase of 75 basis points -as it did in June and July-, ruling out, for now, a larger movement.
So they have decided the members of the Federal Open Market Committee (FOMC) of the Fed at their September meeting. With this new rise, the institution chaired by Jerome Powell has placed the price of money in the range between 3% and 3.25%levels not reached since 2008.
Those responsible for monetary policy, therefore, have maintained the pace of increases in reference rates, compared to some forecasts that did not rule out an increase of a full percentage point.
Thus, the Fed has raised interest rates three quarters of a point at the June, July and September meetings. The upward cycle began in March, when the issuing institute increased them by 25 basis points. In May, the increase was half a percentage point.
In total, the US central bank has raised interest rates by 300 basis points with the aim of curbing the rise in prices. In the United States, the inflation rate stood at 8.3% year-on-year in August, more than four times above the 2% target set by the Fed.
Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising food and energy prices, and broader price pressures. post-appointment communication.
According to the same document, Fed members are prepared to “adjust monetary policy stance as appropriate if risks arise that prevent” the objectives set by the institution.
[Powell apunta a otra subida de tipos de la Fed de 0,75 puntos pese al “dolor” que pueda causar a las “familias”]
This has been the first meeting that the FOMC has held since the Jackson Hole symposium took place at the end of August. At that time, the members of the Fed They have already made it clear that their priority is price control.
This was pointed out by Powell himself when he warned that the normalization of monetary policy could cause “some pain” to businesses and households. In the same way, the officials who spoke at the central bankers summit stressed that monetary policy should remain restrictive for longer than the market discounted at the beginning of the summer.
“Much Greater Pain”
And in the same sense Powell has pronounced in his speech before the press. The central banker has pointed out that “without certainty about how the economy will develop it was necessary to bring monetary policy to a restrictive level”.
Likewise, Powell has pointed out that “it will probably take a while to see the full effects” of interest rate hikes. Once these reach “a certain level”, there is a possibility that the Fed will make a stop to assess the situation, he has explained. However, he has pointed out, that level has not yet been reached.
In this sense, Powell has recognized that achieve a soft landing [de la economía] it is a challenge”. “Nobody knows if a recession will happen and if so, how deep it will be,” he added.
In this regard, Powell has admitted that the Fed knows that rate hikes are likely to will cause “a period of below-trend economic growth”and that labor market conditions are sure to worsen.
In his opinion, the chances of a soft landing for the economy will decrease to the extent that monetary policy is more restrictive or these conditions are maintained for longer.
However, it has pointed out that “Not reducing inflation would cause much greater pain”. For this reason, it is appropriate to continue making “further increases in interest rates in the future”, until inflation is controlled.
This vision marries with the update of the dot plot or dot plot, where the Fed members themselves reflect their forecasts of where interest rates will be in the future.
In June, most FOMC members expected rates to be above 3% at the end of 2022. Now, however, everyone anticipates that they will at least close the year above 4%. Looking ahead to 2023, the consensus places the price of money above 4.5%.
The central projection of the issuing institution indicates that interest rates will be between 4.1% and 4.6% in 2022, compared to the range of between 3.1% and 3.6% three months ago . For 2023, bankers anticipate a range of between 4.4% and 4.9%, compared to the band between 3.6% and 4.1% in June.
Fed members also have modified their economic forecasts. They have dramatically reduced estimates of economic growth, but raised unemployment levels for the coming years.
The issuing institute now expects that the US economy will grow by 0.2% in 20221.5 points less than in June, when he anticipated that the gross domestic product (GDP) would advance by 1.7%.
Nowadays, The United States is in a technical recession. having added two consecutive quarters of economic contraction. Between April and June, US GDP contracted 0.1% compared to the previous three months.
The institution also has revised down its expectations for 2023 and 2024. He expects next year’s growth to be 1.2% and 1.7%. These figures are five and two tenths lower, respectively, than those offered in June.
In the face of slower economic growth, The Fed has raised its unemployment estimates. Those responsible for monetary policy estimate that the country will close the year with an unemployment rate of 3.8%, compared to 3.7% in July.
[La Fed asume la recesión como la receta para frenar los precios en EEUU y abre la puerta a un contagio a la UE]
In August, the US unemployment rate rose two tenths, precisely to 3.7%, despite the fact that the country created 315,000 new jobs. It was the 20th consecutive month of job growth.
Fed members expect unemployment to stand at 4.4% in both 2023 and 2024. Both rates are above the 3.9% and 4.1% forecast, respectively, three months ago.
About inflationmeasured as personal consumption expenditure (PCE), would amount to 4.5% at the end of 2022, 3.1% at the end of 2023 and 2.3% in 2024.
In this way, the Fed has raised its forecasts for this year by two tenths and those for next year by four; while it has kept those of 2024 unchanged. The indicator stood at 4.6% in July -latest data available-. This reading “is not where we expect or want to be,” Powell said.
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