The United States Federal Reserve the expectation has been fulfilled and it is this wednesday without touching the interest ratesal though he left the the door is open to future increases to continue the fight against inflation. For now, however, rates will remain at a from 5.25 and 5.5%, the highest level in 22 years.
They will stay there at least until December 13, the date of the Fed’s next decisionwho must decide how and when to act in order to strive slowing down an economy which until now still has not yielded to the usual pressure of high rates of monetary policy and the including inflation.
“There is a long way to go in the process of continuously lowering the inflation to him 2%”, the Fed’s goalhe acknowledged in a press conference Jerome Powell, the chairman of the Fed. “The others Months of good data are just the beginning than is necessary to gain confidence that inflation will continue to fall towards our goal,” he added.
A reason to stop
Part of the pause made by the Fed, whose decision comes six days after the European Central Bank also hit the brakes on its rate hike for the first time in 15 months, is due to the fact that the The treasury bond market in the US React in its monetary policy. The price of these long-term bonds has collapsed especially in the past two months, which translates into an increase in long-term interest rates, something that has more expensive loans, loans, loans to buy a car, credit card payments or business investments.
This increase in prices did not slow down the economy at the moment, but it ended up feeling more unusual. This would give the US central bank room to not have to make more hikes, thing that Powell He already taught last month at a conference in New York. And in its statement this Wednesday the Fed explained that these tightened financial and credit conditions for households and businesses “may evaluate economic activity, hiring and inflationn” but admitted that “the range those effects remain uncertainty”.
In the press conference, Powell insisted on this uncertainty. And he remembers that “the The tough conditions should continue, something that remains to be seen”.
Also uncertain is the possible impact of the war between Israel and Hamas on the economy and inflation. “It is not clear at the moment if the conflict in the Middle East is on track to have a major impact on the economy. That doesn’t mean (the conflict) is less important,” Powell said, downplaying for now its potential impact on the Fed’s decisions.
Rapid growth
The policy of aggressive rate hikes, launched by the Fed after the pandemic and to prevent inflation, was carried out in just 18 months it will pass from almost zero to more than 5% and will reach its current level in July. Oftentimes something like this can lead to cost containment and layoffs for companies. Now, however, The US economy shows no signs of slowing down.
Since June inflation has slowed down considerably and in the Fed’s favorite measure it decreased in September to 3.4% compared to a peak of 7.1% in the summer of last year. This decline is something that usually happens when economic activity is weak, but the data for the last quarter of the US, published last week, shows that it is not only weakening but strengthening. That quarter was the fifth consecutive quarter of growth, with an annual percentage of economic expansion of 4.9%, the fastest pace since 2021. And the labor market, despite some signs of cooling, also remains strong: the the unemployment rate is at 3.8% and there it is 33 consecutive months of job creation.
The key question
The main question is how the Fed will respond to this economic reaction. Open the possibility of a new rise of rates this year – something the Fed suggested at its last meeting in September, where it already stopped raising -, or in early 2024, although Powell did not provide no idea of the potential moment At the press conference.
Neither was the Fed’s statement on Wednesday announcing its decision, which was adopted by unity. But not a single point about the potential for future increases has changed from the message already launched in September and continues to announce that they are “ready to adjust fiscal policy as appropriate if risks arise which prevents the achievement of the objectives” of the highest work. and inflation.
With the suspension of the decision and the focus on the potential increase in the future, another important question for many analysts and for the markets has been somewhat postponed: when will the rate reductions begin to arrive. Powell was forthright in emphasizing that Fed “not thinking about rate cuts” “Didn’t even talk about that.” The focus, as he recalled, was to ensure that monetary policy would help reduce inflation and the following key question: how long will the high rates stay when they reached their peak.
