Wednesday, May 18

The Federal Reserve opens the door to a cycle of interest rate hikes


He will not only upload them but “soon”. The Federal Reserve of the United States (Fed) has affirmed that the strength of the working market and the high level of inflation, well above the 2% target, allow confidence that “early“it is appropriate to undertake a rise in the target range for interest rates. That opens the door for the new upward cycle in the price of money, after almost two years of being at the 0% level, to begin in March, at the same time that asset price comparisons will end, according to analysts.

In the press conference after the Fed meeting, its president, Jerome Powell, has been more forceful: “I would say that the committee is in favor of raising rates (…) at the March meeting, assuming that the conditions are appropriate to do so.” In any case, he has reiterated that he is convinced that inflation will moderate this year. “We continue to expect inflation to slow down during the year,” he said. In turn, he added that “the engines of the rise in inflation are mainly the disturbances caused by the pandemic.”

After its meeting, the Fed has stated in a statement that “with inflation well above 2% and a strong labor market” the agency “expects that it will soon be appropriate to raise the target range for the federal funds rate.” To avoid stock market movements after two days of rebound after a Monday that was marked by the crisis in Ukraine, the Federal Open Market Committee (FOMC), the Fed body that decides monetary policy, has chosen to keep unchanged the reference interest rate in a target range between 0% and 0.25%. At the same time, it confirmed will continue to reduce the monthly pace of its net asset purchases, which will allow them to be completed in early March.

Three or four

In December, the Fed chairman warned that the first rate hike of the three anticipated could come in the first half of the year. In any case, analysts do not rule out that instead of three the Fed ends up applying up to four increases, depending on how inflation evolves. The price of money was reduced to 0% in March 2020, as a result of the crisis caused by the pandemic. The previous time the Fed took a similar step was in December 2008, with the financial crisis, and it lasted seven years later.

The consumer price index (IPC) of the USA stood at 7% in the interannual rate last December, which meant an acceleration of two tenths with respect to the figure for November and the highest rate registered in the country since June 1982. This rise in the general level of prices changed the objectives of the Fed, which no longer considered this evolution as something merely circumstantial.

Related news

After a phase of measures to strengthen the recovery after the crisis caused by the coronavirus comes a new stage marked by the strategy of avoiding overheating of the economy, that is, excess inflation that could truncate the improvement in activity. With the higher price of money, loans to individuals and companies become more expensive, which slows down demand.

The Fed also highlights a reduction in supply problems, which should improve the supply of goods and materials and help curb inflation. And that on the same day that a barrel of Brent oil, the reference quality in Europe, touched 90 dollars for the first time since 2014 due to fears of interruptions in the supply of Russian gas due to the crisis with Ukraine, another of the elements of uncertainty in the economy.



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