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First modification:
In an attempt to continue curbing inflation, the United States Federal Reserve (Fed) raised its reference interest rate by 0.25 percentage points and placed it in a range of between 5% and 5.25%, a measure that it would end up affecting users of consumer and mortgage loans, among others.
The Central Bank of the United States acted as the market expected in its monetary policy meeting that ended this Wednesday. However, the surprise factor came from a sudden change of speech from its president.
While Jerome Powell cautioned that “no decision on a pause (in rate hikes) was made today,” he also highlighted a change in the final statement from the Fed’s Federal Open Market Committee (FOMC). which aroused the interest of analysts.
“You may have noticed that, in the March statement, we had a sentence that said, ‘the committee anticipates that further tightening of policy may be appropriate.’ That sentence is no longer in the statement, we removed it.”
For the financial market, although it was clear that there are still no decisions in this regard, it was also a sign that the door to a pause in its aggressive tightening cycle is not completely closed, as it seemed to be in previous meetings.
How does it affect the pocket of Americans?
Although the adjustment in interest rates decreed by the Fed is not reflected immediately, in the future those who borrow through credit cards or acquire housing loans will see their debt costs increase.
But in addition to raising the cost of borrowing, with the adjustment of interest rates to US banks, the specter of an economic slowdown in the United States is once again haunting.
Indeed, economists worry that the Fed’s run of 10 rate hikes since March 2022 could eventually cause the economy to slow too much and trigger a recession.
The effects of raising interest rates are already beginning to be felt: inflation in the United States has slowed in recent months, although it remains high. Consumer prices rose 5% yoy in March, a lower adjustment than the 6% yoy increase recorded in February. And notably less than the peak of 9.2% reached last summer.
The Fed’s goal is to curb consumer spending, thus reducing demand for homes, cars, and other goods and services, which could ultimately cool the economy and lower prices.
