Members of the Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) on Wednesday decided to increase the federal funds rate by a further 75 basis points for the third time in a row.
The central body has accumulated since March of this year 300 basis points, the fastest rate of rates on record. After this increase, the benchmark is currently in the range of 3.0 to 3.25 per cent, from 2.25 to 2.5 per cent earlier.
With this, the federal funds rate has reached its highest level since January 2008, and the fastest rate movement since record, as on no other occasion the Fed has lowered the benchmark by 75 basis points three times in a row. Points are not increased.
In addition, the central bank took a more restrictive tone, so the cycle of growth is still far from over and higher levels are expected for the end of this year and for 2023, as well as adjusting its inflation forecasts upward And created a sharp cut in growth expectations.
In a press conference, Jerome Powell, Fed ChairmanReaffirmed the commitment to fight inflation, for which he said the rate hike would continue till inflation returned to the target of 2 per cent.
“We have just moved to the lowest level that can be considered restrictive, and certainly in my opinion and the opinion of the committee is that there is still a way to go,” he said.
However, he stressed that as monetary policy tightens, the pace of rate hikes may slow down. “At some point when monetary policy tightens further, it would be appropriate to slow down growth,” he said.
The US central bank president, Jerome Powell, made it clear that he would do everything possible to ease the inflationary pressures seen recently, with markets already discounting this growth.
Consumer Price Index recorded in August Annual growth of 8.3 percent, which means a clear improvement compared to the 9.1 and 8.5 percent recorded in June and July, respectively; However, inflation in the US Union is still at levels not seen in more than four decades.
Given this complex inflation scenario, markets are already betting that the Fed will close this year with a rate above 3.5 percent.
Recession at the door: Fed estimates US GDP to grow only 0.2 percent this 2022
The United States Federal Reserve (Fed) on Wednesday adjusted its growth projections with a new monetary policy announcement.
According to the agency for this year US economy will grow only 0.2 percentAnd that is in contrast to the 1.7 percent estimated in June.
For 2023, progress is expected at 1.2 percent, a decline of 50 basis points compared to the previous 1.7 percent.
It also predicts that general inflation will close this year at 5.4 percent, and no longer at the 5.2 projected two months ago.
It is because of these factors that 18 of the 19 members of the committee projected that the federal funds rate would close above 4 percent this year.
On the other hand, the dot plot indicates that the interest rate will close this 2022 in the range of 4.25 to 4.5 per cent, which means an additional increase of 1.25 points from its current level.
For the next year, some members of the Open Market Committee see the rate in the range of 4.75 to 5.0 percent. This will happen until 2024 when the federal funds rate sees lower levels.
Powell said a slowdown episode could not be ruled out because of the restrictive stance the Fed is taking. “No one knows whether this process will lead to a recession,” he insisted.
Gabriel Casillas, Barclays’ chief economist for Latin America, highlighted that the Fed itself has updated its funding rate projections upwards. “It is a very strong message of commitment to reduce inflation,” he said.
Alejandra Marcos, director of analysis and strategy at Intercam, also stressed that the central body will not take its finger off the line until inflation is under control.
“The graph of points, where various committee members clearly express their expectations with regard to the interest rate, shows that the cycle of growth is not over, thus providing at least 125 additional basis points for this year. is expected”, he announced, adding that it would not be until 2024 when the Fed could be encouraged to lower interest rates.
Fed rate, ‘eye’ on this data: US inflation rises to 8.3% in August
inflation from the United States August was stronger than expected, possibly keeping the Federal Reserve (Fed) on track for a 75 basis point increase for the third time in a row.
consumer price index rises 0.1 percent from July, after showing no change in the previous month, Labor Department data showed Tuesday. Compared to a year ago, there was a marginal drop in prices by 8.3 per cent.