The Fed raises the money price by 75 basis points and lowers its growth forecast for this year from 2.8% to 1.7%
What seemed impossible a few weeks ago has become reality. The US Federal Reserve (Fed) made an almost historic decision yesterday to raise interest rates by 75 basis points, keeping the benchmark rate between 1.5% and 1.75%. This is the largest increase since 1994 – chaired by Alan Greenspan – and shows that the priority for the institution led by Jerome Powell is the fight against inflation.
The move was much more aggressive at the 50 basis points expected by the market until a few days ago when it was reported that the IPC rose to 8.6% in May. That data changed all forecasts and accelerated a much more aggressive speech that, according to some benchmark analysts like Goldman Sachs, could be repeated at the July meeting.
The agency also took advantage of Wednesday’s meeting to update its economic forecasts. And the cut in the growth forecast for this year was more than remarkable. The Fed is now limiting the momentum of the world’s leading power to 1.7% for this year, from the 2.8% forecast in its previous macroeconomic chart. In 2023, growth is expected to be 1.7% (compared to 2.2% projected in March).
For its part, the Fed raised its estimate for this year’s unemployment rate from 3.5% to 3.7%. And, most importantly, he sees inflation at the end of the year at 5.2%, well above the 4.3% forecast just three months ago. As early as 2023, the reference would fall to 2.6%, close to 2.2% in 2024.
Despite the cut in its growth forecast, the agency said in its statement that “economic activity in the US appears to have picked up after the contraction in the first quarter, with solid job creation.” But the risks remain. The agency assures that “inflation remains high, reflecting the imbalances between supply and demand associated with the pandemic, the surge in energy prices and price pressures.”
So Jerome Powell made it clear again that for future decisions or possible adjustments, they will continue to closely evaluate labor market and inflation data to meet the long-term goal of keeping it at 2%.
The argument of the “hawks” – as the members of the Council who advocate a more rapid tightening of monetary policy are known – seems powerful in justifying the institution being much more aggressive than, say, the European Central Bank (ECB), it will launch its first rate hike in 11 years in July.
First of all, because the war in Ukraine is affecting its economy to a lesser extent due to a simple geographical issue. In addition, while inflation in the US and the Eurozone shares common causes, such as the rise in energy prices, the core inflation of the world’s leading power is much higher, at 6.4%, than that of the Eurozone, currently at 3%. Ricardo Murillo, an analyst at CaixaBank Research, explains that “an important factor in explaining this is that more bottlenecks are occurring, due to more generous direct fiscal support than in the eurozone.”
In a recent analysis, the company’s experts recall that the labor market, which is key to explaining inflationary pressures in the medium term, “is under much more pressure in the US”, where data such as wage increases of more than 5% have already been displayed. (compared to the Eurozone, with increases of less than 2%).
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.
