2023-11-01 19:00:44
The United States Federal Reserve has fulfilled what was expected and this Wednesday has left without touching interest ratesalthough he has left the door open to a future increase to continue fighting inflation. For now, however, rates will remain at a range between 5.25 and 5.5%, are highest level in 22 years.
They will remain there at least until December 13, date of the next Fed decisionwho has to decide how and when to act to try to slow down an economy which until now has not yielded as traditionally to the pressures of high-rate monetary policy and to contain inflation.
“There is a long way to go in the process of steadily lowering the inflation to him 2%”, the Fed’s goalhe acknowledged in a press conference Jerome Powell, the chairman of the Fed. “Some Months of good data are just the beginning than will be necessary to gain confidence that inflation falls steadily towards our objective,” he added.
A reason for pause
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 in the US 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 Powell He already pointed out last month at a conference in New York. And in its statement this Wednesday the Fed explains that these tightened financial and credit conditions for households and businesses “probably will weigh on economic activity, hiring and inflationn” but admits that “the range of those effects remains uncertain“.
At the press conference, Powell insisted on this uncertainty. And he recalled that “the hardened conditions should be persistent, something that remains to be seen”.
Also uncertain is the possible impact that the war between Israel and Hamas may have on the economy and inflation. “It is not clear at this time whether the conflict in the Middle East is on track to have significant economic effects. That doesn’t mean that [el conflicto] “is not incredibly important,” Powell said, minimizing at this time its potential impact on the Fed’s decisions.
Strong growth
The policy of aggressive rate increases, which the Fed launched after the pandemic and to combat inflation, made in just 18 months these 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 inflation has slowed 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, despite some signs of cooling, also remains strong: the unemployment rate is at 3.8% and there has been 33 consecutive months of job creation.
The key question
The key question is how the Fed will respond to this reaction of the economy. Open is 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, although Powell has not given no clue of the potential moment At the press conference.
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Nor did the Fed’s statement this Wednesday announcing its decision, adopted by unanimity. But not a single point about the potential for future increases has changed from the message that was already launched in September and continues to announce that they are “prepared to adjust monetary policy as appropriate if risks emerge that could prevent reaching the goals” of maximum employment. and inflation.
With the pause in the decision and the focus on the potential future increase, another key question for many analysts and for the markets is somewhat postponed: when can rate cuts begin to arrive. Powell has been blunt in emphasizing that The Fed “is not thinking about rate cuts” “Not even talking about that at all.” The focus, as he recalled, is on ensuring that its monetary policy helps reduce inflation and on the following key question: how long will high rates stay once they have reached their peak.
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