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The US Federal Reserve raises interest rates 0.25 points and warns that there will be new increases

2023-02-01T19:18:39.947Z


The central bank leaves the price of money at 4.5%-4.75% after the eighth consecutive rise The time has come to slow down. The Federal Reserve of the United States has approved this Wednesday its eighth consecutive increase in official interest rates, the first of this year, but this time it has been only 0.25 points, as expected. Already in December, the president of the central bank of the United States, Jerome Powell, decided to stop the rate of increase in the price of money with a


The time has come to slow down.

The Federal Reserve of the United States has approved this Wednesday its eighth consecutive increase in official interest rates, the first of this year, but this time it has been only 0.25 points, as expected.

Already in December, the president of the central bank of the United States, Jerome Powell, decided to stop the rate of increase in the price of money with a rise of 0.5 points, after four consecutive rises of 0.75 points.

In any case, the bank warns that the war against inflation is not over and there will be more rate hikes.

This Wednesday's movement leaves interest rates in the range of 4.5%-4.75%.

It is the highest level since September 2007, although there is not much new in that, since the rates were already the highest in 15 years before the new rise.

The Fed has kept intact the wording of the key part of its statement: “The [monetary policy] committee anticipates that continued increases in the target range will be appropriate to achieve a monetary policy stance tight enough to return inflation to be at 2% over time.

Some economists had speculated that he would soften that phrase, to leave the door open for a pause in rate hikes at the next meeting, but Powell prefers to keep the tough image.

The phrase that says that "when determining the scope [before it said the pace] of future increases in the target range, the committee will take into account the accumulated tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and economic and financial developments”.

That change, "range" for "pace" seems to indicate that any movement on the horizon will be 0.25 points, but it is not enough for now to think of a pause.

The central bank's thesis is that the effects of the most rapid tightening of monetary policy since the 1980s have yet to be fully felt, so it makes sense to moderate the pace of rate hikes as they approach an appropriate level to lower inflation.

Rate hikes make mortgages, consumer loans and investment financing more expensive.

In this way, they cool down demand and with it, the economy, which reduces pressure on prices.

Powell continues to try to achieve the difficult soft landing for the US economy, that is, control inflation without actually causing a recession.

This same week, the head of analysis of the International Monetary Fund (IMF), Pierre-Olivier Gourinchas, assured that there is a path to achieve it, but that it is narrow.

The president of the central bank of the United States is clear that his priority is to restore price stability and he is willing to cause a recession if necessary to achieve this.

The Federal Reserve has received good news on the price side in recent months.

Inflation closed 2022 at 6.5%, its lowest in more than a year, but still well above the 2% target that the central bank considers price stability.

Another change in the statement acknowledges that inflation "has moderated somewhat", but stresses that it remains high.

In addition, wage growth has lost strength, dispelling fears of a spiral that would entrench inflation.

However, the labor market remains very constrained, with the unemployment rate at 3.5%, the lowest in half a century.

Powell has repeatedly warned that he will not let down his guard until prices are clearly under control.

The president of the US central bank has also insisted that even more important than the rate of increase is the level that rates will reach and for how long they will remain high.

The forecasts of the members of the Federal Reserve themselves, published in December, suggest that the rates will stand at 5.125% by the end of the year, that is, in the range of 5%-5.25%, to then drop a point in 2024 and another, in 2025, although Powell has made it clear that he will not think about rate cuts until he sees inflation approaching 2%.

Given the changing economic landscape, Powell has preferred during the last press conferences not to commit too much to the next move.

The next meeting of the Federal Reserve's monetary policy committee will be on March 21 and 22.

Until then, two new inflation readings and multiple other indicators have yet to be released that will influence the final decision, but this Wednesday's statement seems to indicate that a further rise is likely.

[Breaking news.

There will be expansion soon]


Source: elparis

All business articles on 2023-02-01

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