The interest rate hike policy with which the United States Federal Reserve has been fighting inflation seems to have reached its end endalthough the US central bank continues to move with caution and keeping your options open.
As expected, the Fed’s Federal Open Market Committee decided this Wednesday to leave interest rates unchangedwhich for the unanimous decision adopted this Wednesday have remained in the range between 5.25 and 5.50, the highest in 22 years, which was reached in July after 11 increases since March of last year.
But in addition, the Fed has announced its plans to carry out three cuts next year, one more than I anticipated in September. And although there is room to raise them again if an unfavorable evolution occurs, or if some of the “high risks” that are still perceived in terms of inflation become reality, he considers that “possibly the peak rate has been reached or is close to for this cycle,” as Jerome Powell, its president, explained at a press conference, in the most forceful statement to date on this issue.
Third consecutive break
It is already the third consecutive meeting in which the Fed presses the button pause, after a year of increases at the most intense rate in four decades to combat a price increase that had not been seen in 40 years. What dominated before this Wednesday was the question of when and for how much they would start In 2024, rate cuts will begin. And although there are no definitive answers, especially in questions of the moment in which they will occur, the forecasts made public also this Wednesday, like Powell’s words, anticipate that these types will end next year 0.75% below from its current rate, leaving around 4.6%. Eight of the committee members anticipate that the declines will be smaller and five that they will be deeper.
The Fed demonstrates at the same time that doors still do not closewithout wanting to claim victory too soon and giving yourself room to maneuvera space to respond that the institution’s trademark has been made under the presidency of Powell as he fights inflation and searches for the famoussoft landing that allows us to get closer to the mandate of 2% inflation and slow down economic growth but avoid recession.
It covers its back in case an unexpected evolution of the economy forces it to resume increases and also allows itself to observe the impact that higher credit costs are having on the economy. But with a single word added to the statement regarding the language he used in the previous one to talk about possible increases, a “anyone” placed with great intention, as Powell explained, has removed the possibility of having to take that measure.
“We are seeing a strong growth which seems to be moderatinga labor market that returns to balance from multiple parameters and we see the inflation do real progress. Are “the things we wanted to see”explained Powell, although he also insisted that “there is still a way to go. “No one declares victory, it would be premature, and we cannot guarantee progress so we move carefully,” he also explained.
Forecasts
This Wednesday’s meeting, the last of the year, also came with the quarterly economic forecasts, that allow us to see where the Fed expects to see rates at the end of next year, with that 75 basis point cut, in addition to its outlook for inflation, unemployment and economic growth. In terms of price increases, they have improved their forecasts compared to September. If then they calculated that this quarter the underlying would end at 3.7%, now they believe it will do so in 3.2%. And to 2024 They also expect an improvement: from the 2.6% they estimated in September they have gone to 2.4% of its latest forecasts.
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What Powell also recognized in the press conference when asked is that there is a disconnection between economic data on paper and the reality that citizens experience. “The people continue living with high prices, and people don’t like that, we see the public opinion polls,” he said.