The US agency raises its reference rate by just 25 basis points to the highest level of 2007
The moderation in inflation in the US – which ended 2022 at 6.5% – has enabled the Federal Reserve (Fed) to slow the pace of rate hikes. As the market had been anticipating for weeks, the monetary body has decided to raise the reference rate by 25 basis points to a new range of 4.5%-4.75%. Rates thus remain at levels not seen since September 2007, but the increase is less than the 50 basis points implemented in December and the 75 basis points announced by the agency at its four previous meetings.
Analyst consensus indicates that the price will rise another 25 points in March, until it hits the expected 5% “peak”. The key from then on will be to figure out how long they will stay at that level. For this reason, any intervention from the president of the organization, Jerome Powell, will be critical to the market today.
His speech has become louder lately, making it clear that rates will remain high for a while. The fight against inflation – especially because of the possible impact on wage developments that could generate new tensions – is still a long way off. “Recent indicators point to moderate spending and output growth. Inflation has declined somewhat, but remains elevated,” the Fed said in its statement. “We are committed to bringing inflation back to the target of 2%,” he stressed.
The agency is also concerned about the complacency investors have developed in recent weeks about the possibility of an end to monetary policy tightening, and expects interest rate cuts before the end of the year. “The statements we have seen from the various members of the Fed continue to warn about the risks that premature easing of its policy could pose to the US economy,” explained Cristina Gavín, head of Fixed Income at Ibercaja Gestión. In other words, the risk of disappointment for those who expect rate cuts to come soon is high.
Against this background, the European Central Bank (ECB) will take over from the Fed on Thursday. The consensus expects the body chaired by Christine Lagarde to raise rates more vigorously, by 50 basis points, with another half point in March.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
