The US Federal Reserve (Fed) faced one of its most complex decisions on Wednesday. As expected, the central bank made its tenth consecutive rate hike, by another 25 basis points, keeping the margin at 5.00%-5.25%. They are maximums from the past 16 years. And everything indicates that he will take a breather to see how this new cycle affects the economy. The official statement makes it clear that inflation remains the main enemy to beat, explaining that subsequent decisions will be made based on future variables such as labor market conditions, price pressures and financial developments, as well as possible international events. While foreseeable, the movement has been measured to the millimeter in the complex labyrinth in which the country’s monetary policy still resides. On the one hand, the economy has hit the brakes with growth of only 1.1% in the first quarter. On the other hand, consumption and the labor market remain strong. Inflation is falling. But the current 5% is still a long way from the Fed’s 2% target. If we add to that the recent banking crisis – in which interest rate hikes have had a lot to do with it – it seems clear that Powell’s men are still at the be work. be done to restore confidence in the market. “Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation. The magnitude of these effects remains uncertain,” the agency said in its statement. Impact of the shock Consensus agrees that factors such as “the vulnerability of regional banks or the issue of raising the debt ceiling” reinforce the idea that this will be the agency’s last rate hike. Some even think the Fed will have to cut them before the end of the year to avoid the risk of a recession. And no matter how secure the US banking system is, the bankruptcy of First Republic Bank has increased the number of failed entities to four in just a few months, following the collapses of Silvergate Capital, Silicon Valley Bank, and Signature Bank. And the market has already focused on its next victim: the PacWest Bank, which collapsed nearly 30% on Wall Street on Tuesday. Currently, and according to Bloomberg calculations, shareholders of the fallen banks have lost $46,900 million since the end of February from the collapse in prices, to which must be added another $7,500 in bonds and other types of debt. of these entities. Moreover, this crisis has already begun to tighten credit conditions. And this has a double side. On the one hand, it contributes to the economic slowdown. But precisely that cooling can also help to curb inflation, which is, after all, the ultimate goal of the Fed.
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.
