Interest rates | The Federal Reserve warns that the US economy may not have cooled down enough

2023-08-25 16:50:13

The president of the United States Federal Reserve (Fed), Jerome Powell, has warned that, despite the fact that the rate of inflation moderated recently, “it’s still too high”for which he has ensured that the US central bank is ready to raise interest rates if necessary.

Very measured message from the president of the Federal Reserve (EDF). During his keynote speech at the annual meeting of Jackson Hole (Wyoming), Jerome Powell has warned that the central bank of the dollar is “attentive to the signs That the economy (American) could not be getting cold as expected.” That is, you are analyzing whether the rate hikes they would not be effective enough how to curb demand until the inflation move down to your 2% medium-term target. But at the same time, the world’s top central banker has also ensured that the institution will act “carefully” and has left again open -as it already did in July- if it will continue raising rates or will keep them.

“As usual, we navigate guided by the stars under a cloudy sky. In such circumstances, risk management considerations are critical. In future meetings, we will assess our progress based on the totality of data and evolving prospects and risks. Based on this evaluation, we will proceed with caution when deciding whether to tighten monetary policy further or instead hold rates constant and wait for more data,” Powell maintained, thus leaving all options open.

Las bagshowever, has reacted with fallssince investors have interpreted that the end is far away of the unusual hardening of monetary policy launched in the spring of 2022 to combat the global inflationary spiral caused by Russia’s invasion of Ukraine. “Although the inflation has gone down from its peak – a welcome evolution – it remains too high. We are prepared for raise rates moreif necessary, and we intend to keep monetary policy at a restrictive level until we are confident that inflation is coming down sustainably to our target,” Powell said.

Overgrowth

The Federal Reserve, thus, has increased the price of money in 5.25 percentage points from March 2022, up to an interval of 5,25%-5,5%, the highest level in 22 years. He IPC United States general has been moderate remarkably since the maximum of 9.1% that it reached in mid-2022. Of course, in July it rose slightly, from 3% in June to 3.2%, although the index underlying -which excludes the more volatile energy and food prices- fell one tenth compared to the previous month, up to 4.7%. Despite this, the GDP continues to grow notably (0.5% in the first quarter and 0.6% in the second), while the unemployment rate it fell in July to 3.5%, near the lowest levels in 50 years.

Powell, in this sense, has warned that the drop in inflation underlying in June and July is not sufficient to find out if the decline will continue in the coming months or if it will stagnate. He has also highlighted that the GDP growth it is “above expectations and its long-term trend”, which the consumer spending is turned out to be “especially robust”, and that the real estate It has started to show signs of recovery after falling sharply for 18 months. “Additional evidence of persistently above-trend growth could risk further progress on inflation and justify further tightening of monetary policy”, he warned.

On the other side of the scale, the president of the FED has highlighted that the rate hikes take several quarters in deploying all its effects, with which part of them have yet to be felt in activity and inflation. However, he has also insisted on the idea that bringing the CPI to the 2% target “will require a growing period economic below trendas well as true weakening of the conditions of the working market“. Likewise, it has confirmed that it will maintain the objective at 2%, in the face of the voices that defend raising it (which would give room to soften the monetary policy before).