The Federal Reserve (Fed) believes inflation will not fall below the 2% target until 2025
The central banks’ battle against inflation is far from over. The US Federal Reserve (Fed) decided on Thursday to raise its interest rates by 75 basis points for the third consecutive time, until they stayed within the 3%-3.25% range, the 2008 maximum.
The hawks — as members advocating more aggressive monetary policy tightening are called — took control of the body months ago. And this Wednesday, they re-imposed their criteria, given the evidence that appeasing the historic price hike will require strong moves.
Fed president Jerome Powell made it clear a few weeks ago that the process will bring “pain” for families and businesses for a while. But a temporary recession is the price to pay to end inflation, which was still rampant at 8.3% in August, despite the institution beginning to withdraw stimulus much earlier than its European colleagues.
The rates will therefore continue to rise. The big question is until when. And the answer is clear: at least until inflation shows a “consistent pattern” downwards. In other words, a few months of price drops won’t be enough for the agency to let go of the accelerator. Especially as core rates, which exclude fresh food and energy, continue to rise after rising from 5.9% to 6.3% last month, well above expectations.
In this scenario, the key for the market was not so much the increase in tariffs, but in the so-called dot plot in which the members of the committee set their expectations. And the numbers in the document indicate that rates will top 4% this year. And the 2023 average stands at 4.6%, with no forecast of declines through 2024. All this in an environment where the agency doesn’t expect inflation to come close to the 2% target, at least until 2025.
The Fed has also updated its economic forecast. He now expects the economy to grow just 0.2% this year, down from the 1.7% he forecast in June. In addition, the forecast for 2023 and 2024 has been lowered, years in which the US economy will grow by 1.2% and 1.7% (fifteenths and two-tenths below the previous estimate).
The market reaction was immediate and Wall Street turned red. And in the bond market, yields continue to skyrocket, with a 10-year US bond yield (moving inversely with price) at 3.5%. More abrupt was the movement in the shorter terms. After two years, the return is even more than 4%.
The Fed’s decision is not only putting pressure on the market. It is also doing this at the European Central Bank (ECB) itself, which should accelerate its monetary policy tightening to close the gap with the Fed.
In its last meeting, it already approved the largest rate hike in recent decades, also by 75 basis points. But for now, it has failed to appease inflation, nor what could be the next big problem for the region’s economy: the extreme weakness of the euro against the dollar, which is now also at stake for parity. .
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
