The United States Federal Reserve (FED) will decide next Wednesday whether to increase the reference interest rate of 25 basis points or maintains the current range between 5.25% and 5.5% at a time when the economy of the North American country shows signs of overheating with a very active labor market and where inflation remains, which is above the target set by the monetary body.
The Federal Open Market Committee (FOMC) of the FED will meet in Washington starting Tuesday, the 31st, to evaluate different economic indicators and decide if the cost of money will rise again.
In what could be an indication of what could happen, last week the FED warned of various risks to the US economy, including “persistence of inflation, possible loss of the housing market, and pressures on the financing of certain banks”.
This happened after going through a sharp crisis last March, after a break in the strength of some regional banks and in the midst of growth and labor market data that led many analysts to reject the possibility in an economyThe collapse of Signature Bank and Silicon Valley Bank, among others, forced federal authorities to rescue their clients’ deposits.
In its Financial Stability Report, the FED said that “a small group of banks continue to face funding pressures, reflecting concerns about unsecured deposits and other other reasons.” The document also highlights the weaknesses of the economy, especially the persistence of inflationary pressures.
For analysts, if inflation remains high, the organization may apply a stricter monetary policy, and, as a result, credit becomes more expensive and defaults arise in the commercial chain and in the real estate market.
From March 2022 onwards, the FED has raised the interest rate eleven times, taking it from a range between 0% and 0.25% to the current 5.25%/5.50%.
Most Wall Street analysts and investors expect the agency to keep rates in the 5.25%–5.5% range. This happened in a context where consumption continues to be supported by household spending based on credit, retail sales show no signs of decline, and factory orders are at high levels.
One indicator that shows this is that the GDP of the United States grew 4.9% in the last quarter, which shows that the economy is moving at a dizzying pace, despite the level of interest. However, the alert is due to the high level of debt shown by the Treasury.
Former Secretary of the Treasury, Lawrence Summers stressed days ago that “the FED’s job is not to participate in fiscal policy, but I believe that, over time, it should participate as the country’s monetary authority.”
Summers warned that as a result of greater debt and greater deficit, there is greater demand in the economy, which “raises the neutral interest rate, that is, the one that does not drive the expansion or contraction of the economy. ”
The debt has been a serious political problem for the White House ever since. The deadline given by the Republicans ends on November 17 for the Joe Biden administration to accept spending cuts.
Also within the organization, there are divided positions regarding the possibility of a rate adjustment. In his latest presentations, FED Chairman Jerome Powell He chose the path of caution to declare that there is no conviction to continue to attack inflation through monetary policy.
“Inflation remains very high, and a few months of good data is just the beginning of what is needed to build confidence that inflation continues to move toward our goal,” Powell warned. After this, he pointed out that there is no visibility on where inflation will settle in the coming quarters.
“Although the road is likely to be bumpy and take time, my colleagues and I are united in our commitment to continue reducing inflation to 2%,” confirmed the official.
Powell, in his last public presentation in New York, is confident that what is often called a “soft landing in the economy” will be achieved—that is, a reduction in inflation that will not cause a recession.
“So far, the reduction in inflation has not come at the cost of a significant increase in unemployment, a very positive fact but historically unusual,” Powell acknowledged.