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Friday, January 27, 2023

Inflation in the US drops to 7.1% and will allow the Federal Reserve to stop raising rates

United States President Joe Biden celebrated last week that for the first time since taking over the White House, the price of gasoline is cheaper than it was a year ago. Fuel prices have allowed year-on-year inflation to fall for the fifth consecutive month in November to 7.1% from the maximum of 9.1% set in June. While the pressure on prices hasn’t disappeared and part of the year-over-year decline is due to a base effect (a sharp increase from a year ago), the relief will allow the Federal Reserve to slow the pace of interest rate hikes.

The central bank’s monetary policy-setting committee has been called to begin a two-day meeting this Tuesday, after which it will set the price of money at its highest level since 2007. After four consecutive increases of 0.75 points, the Reserve is expected to announce a 0.50 point increase this Wednesday, as recently anticipated by its chairman, Jerome Powell. Yes, this will be the seventh hike of the year, with interest rates moving from near zero levels to a range of 4.25%-4.50%.

Price data for this Tuesday, with a monthly increase of 0.1% and a year-on-year inflation decline of 7.1%, is the second to be published since the last monetary policy meeting. After the positive surprise of a decline in inflation to 7.7% in October, the market was expecting 7.3% this month, while for core inflation, which excludes energy and food, was forecast to go up to 6.1% from 6.3% in October . In November, however, it has fallen further to 6.0%. The year-to-date rate is the lowest since 7.0% at the end of last year.

In any case, core inflation suggests that the fight against price hikes will still be a long one. In addition, the labor market remains strong, with the rate of job creation exceeding the rate considered by the central bank to be compatible with the objective of price stability of 2%. The unemployment rate is close to the lowest it has been in half a century. The economy created 263,000 non-agricultural jobs in the month of November and the country has seen 23 months of uninterrupted growth in employment in the heat of recovery from the pandemic, and continues to create jobs above the level that the central bank deems appropriate. accepts. at this very moment.

The chairman of the Federal Reserve said at a conference at the Brookings Institution in Washington on November 30: “The full effect of the rapid tightening [de la política monetaria] They have yet to be realised, so it makes sense to reduce the pace of our rate hikes as we approach the level of tightening that will be sufficient to bring down inflation. The time to ease the pace of rate hikes could come at the earliest at the December meeting.

However, Powell cautioned that this is less important than how far the Federal Reserve will have to raise rates to control inflation and how long it will keep them high. “To re-establish price stability, monetary policy may need to remain tight for some time,” he added. For this reason, many eyes of investors and analysts this Wednesday will be focused not on the 0.5-point increase that has been assumed, but on the projections that members of the Monetary Policy Committee make about growth. Economy, inflation, unemployment and above all, interest rates.

Rate forecasts are only estimates, not commitments at all. Even less so when the FOMC, the committee that sets monetary policy, makes some changes to its composition with the new year. But all analysts expect an upward revision to previous estimates set in September. Powell, in fact, has already forecast that rates will probably reach “somewhat higher” levels in September, when a range of around 4.5%-4.75% was expected.

[Noticia de última hora. Habrá actualización en breve]

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World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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