2023-06-14 20:09:47
Sometimes you have to stop not because you have reached your destination, but to see the path traveled and determine where and how to continue. That is what the Federal Reserve from United States this Wednesday, when first time in the last 11 meetings of its Federal Open Market Committee has put interest rate hikes on hold with what during 15 months has been fighting inflation, leaving the price of money in the range of between 5 and 5.25%.
With that decision, which was widely anticipated by analysts and to which the Fed itself had opened the door at its May meeting , the US central bank step on the brake in what has been the most aggressive pace of rate hikes since the 1980s. But it’s just a temporary standstilland short break, a mere recess to study how monetary policy is impacting and affecting the real economy, since the effects of the increases are not immediate. Because in fact, in a move that has caught many by surprise, the Fed has indicated that prepares for two more climbs this yearand not just one as many had anticipated.
In its quarterly economic forecast update, updated for the first time since March, the Fed now calculates end the year with rates at 5.6%, instead of the 5.1% expected in March. Assuming the raises are made in quarter-point increments, that would mean two more raises in the remaining meetings before the end of 2023.
For now, however, Fed members have decided for unanimity take a breather for evaluation. And in the statement announcing the decision, it is ensured that “”maintaining the rates at this meeting allows the Committee assess additional information and its implications for monetary policy.
I had already warned him in a speech Philip Jefferson last month, one of the Fed governors who has been nominated by Biden to be vice chairman of the central bank’s board. “A decision to maintain rates should not be interpreted as meaning that we have reached the peak in rates for this cycle”, warned Jefferson, who advanced that it would be about “giving more time to the committee for study more data”.
inflation and employment
The last ones on the inflationwhich were published this Tuesday and confirmed a brake on the rate of price increases, which went from 4.9% year-on-year in April to 4% in May, have undoubtedly contributed to the pause. But in those same data it was seen that the underlyingonce food and fuel are removed from the calculations, prices continue to rise too fast: at 5.3% year-on-year in May, an increase of 0.4% compared to April. In all cases, in addition, it is far from target of the Fed to keep inflation at the 2%.
Also the latest data from employmentcon 339,000 jobs created in Mayhe 29th consecutive month of growthshow a strong labor market.
and the fear to which one premature stop in the rise in rates allow it to be encyst inflation, which would force even more aggressive measures.
Powell’s earrings
Rather than the expected rate decision, all eyes are on the Fed’s reasoning and the clues about the next steps you plan to take, including that possibility of a new rate hike. And that attention increases the expectation before the press conference that Powell offers half an hour after issuing the statement announcing the decision. In previous appearances, Powell has insisted that they will make the decisions “meeting to meeting” and depending on the data.
It will also analyze in detail the quarterly economic forecasts on rates, unemployment, inflation and economic growth, that at this meeting the Fed has updated for the first time since March. Those forecasts, which while often wrong are indicative of the Fed’s reasoning, have been complicated by the uncertainty on the impact and scope that adjustments in bank credit may have also had on the economy after the latest turbulence in the sector.
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