2023-11-01 20:12:55
The Federal Reserve from the United States has fulfilled what was expected and this Wednesday has left without touching the interest rates, which will continue at a range between 5.25 and 5.5%. It’s about your highest level in 22 years and will continue at least until December 13, date of the next Fed decisionwhich has to decide how and when to act to try to slow down an economy that until now has not yielded as traditionally to the pressures of high-rate monetary policy.
This policy, which was launched after the pandemic and to combat inflation, made in just 18 months the guys will pass from practically zero to exceeding 5% and reach its current level in July. Normally something like this would have led to spending restraint and layoffs in companies. Now, however, The US economy shows no signs of slowing down.
Since June the inflation has slowed down noticeably and in the Fed’s favorite measure it was reduced in September to 3.4% compared to the peak of 7.1% in the summer of last year. This decline is something that usually happens when economic activity weakens, but data for the last quarter of the US, published last week, show that it is not only weakening but strengthening. That quarter was the fifth consecutive quarter of growth, with an annual percentage of economy expansion of 4.9%, the strongest pace since 2021. And the labor market also remains strong: unemployment rate is at 3.8% and there has been 33 consecutive months of job creation.
The key questions
The key question is how the Fed will respond to this reaction of the economy. Fits the possibility of a new rise of rates this year, something that the Fed had suggested in its previous meeting in September, in which it already paused the increases, or in early 2024. But whether there is an increase or not, the feeling is growing among many analysts that the Fed will opt for keep rates at high levels for longer than had been anticipated, and for as long as necessary, to effectively slow the economy and eventually bring the inflation to the 2% desired goal. The fundamental question is for how long.
Part of the pause that the Fed is taking, whose decision comes six days after the European Central Bank also hit the brakes on its rate hikes for the first time in 15 months, is due to the fact that the Treasury bond market it is reacting to its monetary policy. The price of these long-term bonds has been collapsing especially in the last two months, which has translated into a rise in long-term interest rates, something that has more expensive mortgages, loans, loans to buy a car, credit card payments or business investments. This increase in prices has not slowed down the economy noticeably at the moment, but it has ended up being felt more markedly. It would give the US central bank room to not have to make more increases, something that Jerome Powellthe president of the Fed, already pointed out last month at a conference in New York.
It is precisely in the Powell press conference which offers at 8:30 p.m. local time in Washington (five more hours in Spain) where answers and statements are expected that give indications of the path that the Fed is going to follow now.
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