The economic puzzle of the United States has more and more difficult pieces to fit together.
The economy has slowed down, but not enough to cool the job market and rising wages.
Inflation has subsided, but it is still far from the target and has become entrenched in services.
Rate hikes complicate financial stability.
The government is about to run out of money if the debt ceiling is not raised, which could have catastrophic consequences, according to Treasury Secretary Janet Yellen.
With one eye on prices and another on banks, Federal Reserve Chairman Jerome Powell is preparing to raise interest rates for the tenth consecutive time before considering a pause, according to analysts and investors discounting.
The United States central bank's monetary policy committee concludes its two-day meeting on Wednesday, after which it will announce its decision.
An increase in interest rates of 25 basis points (0.25 percentage points) is expected, to the range of 5%-5.25%.
After this movement, what is foreseeable is that the European Central Bank (ECB) makes a move on Thursday with another increase in the price of money.
The Fed meeting comes as the intervention and sale of First Republic Bank, the third US regional bank to fail in less than two months and has to be bailed out one way or another, is still hot.
In this case, the Federal Deposit Insurance Corporation has cleaned up its balance sheet to sell it to JPMorgan, the largest bank in the United States.
The fall of Silicon Valley Bank last March and the financial storm unleashed since then complicate the Federal Reserve's attempts to achieve a soft landing for the economy, that is, control inflation without leading to a recession.
The central bank's own economists handled in their last meeting as the most probable scenario that the first economy in the world enters recession at the end of the year, as reflected in the minutes.
Part of the problems of the entities is due precisely to the rate hikes, the most aggressive since the 1980s. The rise in the price of money has made fixed-income assets and mortgages granted at low interest rates lose value, which banks have on their balance sheets.
Those who have managed that risk the worst have suffered solvency and liquidity problems that have killed them.
At the last meeting, the Federal Reserve modified the content of its statement.
Earlier he spoke of the need for additional "successive increases" in rates.
In the new wording, the committee anticipated that "some further tightening of monetary policy may be necessary."
The Fed chair said the watchwords were "may" and "some," versus "rolling increases" that were taken for granted.
Although that language seemed to open the door to a pause in rate hikes, the persistence of inflation seems to have prevented it.
Powell is aware that financial instability has an additional restrictive monetary effect, but his priority remains to stop rising prices.
The market will be very attentive to possible variations in the wording of the statement and, above all, to the explanations that Powell gives at the press conference after the meeting.
It is expected that it will leave the door open for a pause, but it cannot be taken for granted either, since it will depend on how prices and other variables evolve before the next committee meeting, scheduled for June 13 and 14.
“We expect a 25 basis point rise in the benchmark interest rate and, at the same time, that the Federal Reserve indicates a pause in further rate hikes if the data allows it,” says Tiffany Wilding, Economist at the Pimco manager.
“The full effect of the fallout from the stresses in the banking sector is uncertain, while inflation and wages look stubborn since the March meeting of the Federal Open Market Committee.
This has led to a more divided committee on the Fed's next move than it has been in several quarters.
Therefore, we believe that the most likely compromise is to establish a pause that allows time to assess the impact, but that is conditional on the new data and maintains an upward trend ”, she adds.
This Wednesday's rise would be the tenth consecutive in as many meetings since March last year.
If confirmed, interest rates will have risen 5 percentage points in just over a year from the level close to zero at which it was due to the pandemic.
The first rise of 25 basis points was followed by another of 50, four consecutive of 75 basis points, one more than 50 and two of 25 more this Wednesday.
Interest rates would exceed 5% for the first time since the summer of 2006, when they stood at 5.25%.
The last time the Federal Reserve raised interest rates so many times in a row was precisely between 2004 and 2006, when the central bank raised the price of money 17 times, although all those increases were 0.25 points.
A rise in rates as aggressive as the current one has not been seen since the 1980s, a job that was divided between Alan Greenspan and Ben Bernanke.
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