The Federal Reserve is giving borrowers a breather as it prepares for its latest rate hike at the end of the year

2023-09-20 20:23:37

Washington The battle against inflation is not yet won. This is the message sent this Wednesday to the world by the Federal Reserve (Fed), the central bank of the United States, which has decided to pause interest rate increases while it analyzes the impact of the monetary policies of last year in economics. In this way, the current price of money, set at the last meeting, in July, remains at its highest point in the last 22 years (in the range of 5.25% – 5.5%) and leaves the door open to a new price increase in November.

“We are quite close, we believe, to where we need to be,” said the president of the body, Jerome Powell, in a press conference. To lower rates again, “we need convincing evidence that we have inflation under control.” The historic inflation arising from the reactivation of consumption after the pandemic, which reached its highest point in four decades a year ago (9.1% year-on-year), has been gradually reduced, until reaching 3.4% current But it is still far from the US central bank’s target, which considers price stability to be achieved at 2%.

Although the announcement of rate maintenance was widely expected, financial markets have recorded immediate falls after learning of the likely hike at the end of the year. In addition, the forecast is that rates will remain “elevated for a longer period of time,” he said the document published by the Fed this Wednesday. “We will need a period of below-trend growth to be able to reduce inflation,” Powell remarked, arguing that it is not yet time to make credit cheaper.

The economy is growing more than expected

Beyond the decision on rates, long awaited by markets, the Fed also published its economic growth forecasts on Wednesday, which paint a more positive picture than expected. Specifically, it predicts a 2.1% growth in gross domestic product (GDP) for this year, a significant increase from the June forecast (1%), and marks the 1.5% forecast for year 2024, which dispels recession rumours.

After months of falling, unemployment has risen in recent months in the United States and inflation has largely eased. However, the trend could change after the increase experienced in the price of energy this week. In addition, the strike in the automotive sector that began last week threatens to cause major disruptions in the supply chain. Finally, the possibility that Congress will not be able to approve the budgets due to the existing divisions, adds a risk that could have “serious consequences” for the economy.