The Federal Reserve (Fed) of the United States indicated on Wednesday that it could act earlier than planned to end its policy of leaving interest rates almost at zero, which has driven the economic recovery, but has coincided with inflationary pressures.
The institution predicted that it will increase its short-term interest rate twice before the end of 2023, which affects many personal and corporate loans.
Previously, it
had estimated that no hikes would occur before 2024
.
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The institution also predicted that the effect of the pandemic on the economy will dissipate as vaccinations increase and the economy grows again.
“The vaccination campaign has reduced the spread of COVID-19.
Thanks to this progress and the support of the monetary policies, the indicators of economic activity and employment have been strengthened ”, said the Fed.
In addition, it updated its inflation forecast for this year to 3.4% compared to its previous estimate of 2.4% in March.
Still,
the Fed expects price increases to be negligible in the next two years.
The Federal Reserve of the United States announced this Wednesday, June 16, 2021, that it will raise interest rates in two increases by the end of 2023. At the moment, there are no changes.
AP
Inflation factors
The calculation reflects the point of view of the president of the institution, Jerome Powell, that
the current inflation is due to a temporary shortage of products
and other transitory effects of the sudden reopening of the economy.
But that estimate reveals a dilemma: that inflation is rising much faster than expected and that the consumer is shopping more and more;
traveling, attending events and eating out.
Consumption is spurring growth as manufacturing and home construction have strengthened.
[Consumer prices rise 5% in May, the fastest pace since the great recession of 2008]
However, employment has not increased at the same rate.
The growth of open positions has not reached 1 million per month - the figure that Powell has set as a goal - although it is clear that employers are interested in hiring, as evidenced by the record number of jobs available.
How does it affect the pocket?
One of the Fed's main goals is to achieve stability;
When inflation exceeds an annual rate of approximately 2%, the Fed will respond by increasing interest rates, in order to lower prices.
In short, if it does not,
inflation then affects the consumer by increasing the prices of the products purchased
.
In essence, the consumer spends more to obtain the same goods and maintain a level of inflation.
In May, inflation soared 5% from the same month last year, the fastest pace since 2008, before the Great Recession.
"Although inflation has a negative connotation to many people, it is not inherently good or bad," cautions Jill Fopiano, president and CEO of O'Brien Wealth Partners.
"Having some level of inflation is a sign that an economy is healthy
.
"
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For this reason, many economists and financial experts assure that inflationary pressure is normal since it is one of the necessary tools for economic reactivation but that, at present, in the United States, it is temporary and to be expected.
"It was only 12 short months ago that many thought they would not leave their homes," said Deron McCoy, with investment consulting firm SEIA.
Which means that the little confidence that existed in spending before the coronavirus pandemic has been reversed.
And as supply chains rebound in the face of sudden demand at the national level for a shortage of certain raw materials,
the prices of many products are rising.
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Like, for example, the prices of used and rental cars, furniture, airline and hotel tickets, as well as essential everyday products such as groceries and gasoline.
"That could mean that the paycheck is not going to last as long as it did before
unless the salary also increases at the same rate
, which has not been the case for most," said Steven Saunders, director and financial advisor with
Round. Table Wealth Management
.
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Marghuerita Cheng, finance organizer and CEO of
Blue Ocean Global Wealth
, points out that all these factors should not be an impediment to not spending money, especially because of what has happened in the last 15 months.
"You just have to be aware of the price increase,"
Cheng recommended.
With information from AP and CNBC