The Fed’s advisory: it may continue to raise interest rates

The Fed is concerned about interest rate hikes

He President of the Federal Reserve of the United States (Fed), Jerome Powell, recognized this Wednesday the 21st that, after the break in June, over the next few months it is likely that yesigan went upconsidering the interest rates, an increase that will depend on the economic data produced in the coming weeks.

(See: Federal Reserve assures that US inflation remains high).

Almost all of the participants in the Federal Open Market Committee, the
the Fed that decides the rate hikes, they think it will be “appropriate to raise rates
of interest a little more for the end of the year
“, before the Committee on Financial Services of the US House of Representatives.

The Fed, he added, will continue to make its decisions’meeting by meeting’, based on “the totality of the incoming data and its implications for the outlook for economic activity and inflation, as well as the balance of risks“.

The ‘inflationary pressures’ pointed out the president of the US regulator, “are still high” and the process of getting inflation back down to 2% has a long way to go“. All this despite the fact that heatyear-on-year rate of inflation fell considerably in Maynine tenths, to stand at 4%, its lowest level since March 2021.

Was the second steepest drop in the consumer price index since it started to decline eleven months ago. As he does every semester, Powell appeared in the aforementioned committee of the Lower House and submitted to questions from the congressmen.

He explained that if last year, when the rate hikes began, what was important was the speed at which rates were raised and there were several consecutive increases of 0.75 points, given “how far” the Fed has gone, the appropriate now is “do it at a more moderate pace“.

(See: Interest rates would continue to rise worldwide).

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This appearance occurred a week after On June 14, the Fed decided to take a break and not raise interest rates this month. Thus, they remain between 5% and 5.25%, the highest level since mid-2007, after a streak of ten consecutive increases carried out to lower inflation.

Powell He did not then rule out further raising them in the future and acknowledged that most Committee members consider it likely that some further increases are appropriate this year pto bring inflation to 2%, a position he defended before Congress.

We remain committed to bringing inflation down to our 2% target and keeping long-term inflation expectations well anchored. Lowering inflation is likely to require a period of below-trend growth and some relaxation in labor market conditionsPowell acknowledged.

The Fed published last week its economic forecastswhich are an average of the estimates made by the members of the committee, and in them he calculated that inflation will continue to moderate this year until it stands at 3.2%, and at 2.5% in 2024.

(See: Fed reviews effects of rate hikes on the US economy.)

He does not expect the desired goal to be reached even in 2025, year in which it calculates that inflation will be placed at 2.1%. Although this does not mean that rates will continue to rise until 2% is reached, Powell qualified, but rather that the final rate will depend on a balance between prices, employment and financial stability.

So, the Committee will take into account the cumulative tightening of monetary policy, the way in which said policy affects economic activity and inflation, and economic and financial factors.

In his speech, Powell referred to the situation of the banking systemwhat is “solid and resistant“, said. “Recent bank failures, including the failure of Silicon Valley Bank, and the resulting banking stress have highlighted the importance of ensuring that we have the right standards in place for banks of this size. We are committed to addressing these vulnerabilities for a stronger banking system.”he claimed.

In this sense, he said that it is necessary to have “tighter regulation around liquidity and uninsured deposits“.

Faced with runaway inflation as a result of the pandemic and the Ukraine war, the Fed began on March 17, 2022 to raise rates.

(See: The dollar and oil feel interest rate rise).

did it with 25 basis points and rose 50 more in May. Then he started to hit the accelerator and made four raises of 75 basis points. In December it increased half a point and this year it began to slow down with three increases of 25 basis points until the pause announced last week.

The Fed’s next meeting will take place on July 25 and 26, and before the end of the year, committee members will hold three more meetings in September, October, and December.


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Written by Editor TLN

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