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The US central bank raises the price of money by 0.5 points and will start selling assets to combat inflation
No surprises, but no less relevant for that. The Federal Reserve (FED) has approved this Wednesday a rate hike of interest of 0.5 percentage pointsup to an interval of 0.75%-1%. Its about second consecutive increase of the price of money approved by the US central bank since it began to raise it in March for the first time since 2018, as well as the elder who gives the green light in a single meeting since 2000. One more step, therefore, in the tightening of its monetary policy aimed at combating the brutal escalation of inflation in the world’s largest economy.
The institution headed by Jerome Powellin fact, has also confirmed that it will start reduce your balance from June. Thus, it will stop reinvesting (buying again) part of the public debt acquired in recent years to support economic growth as its amortization period expires. Initially, it will stop reinvesting 47.5 billion dollars a month and, starting in September, 95 billion dollars a month.
With these measures, the central bank tries to clamp a CPI of USA, which reached 8.5% in March, six tenths more than in February and its level highest in four decades, driven by rising energy, food, and housing prices. At the same time, the country’s GDP suffered a year-on-year decrease of 1.4% in the first quarter due to the impact of the omicron variant of the coronavirus, the withdrawal of public support measures and the consequences of the high level of prices. The challenge for the FED, thus, is maintain a balance between fighting the price spiral and not sinking the economy.
Recession as counterpart
“With the annual rate of consumer inflation at the highest level in four decades, it is feared that the recession is the counterpart of price stability,” said Keith Wade, chief economist and strategist at Schroders. “Whether the next economic slowdown turns into a more or less severe recession will depend to some extent on the pace of Federal Reserve tightening“, warned Pramod Atluri, fixed income manager of Capital Group.
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Powell, however, has argued that the US economy is “very strong and ready to withstand a tightening” of monetary policy. “We have a good chance of having a soft landing” of the economy that avoids recession, has insisted after pointing out that in the next two meetings of the FED it will be on the table to raise rates in another 0.5 points in every encounter.
The doubt, thus, is not whether the organism is going to continue raising the price of money, but how much and until when. “The markets are discounting that the Fed will raise rates at least in 225 basis points at the end of the yearwhich would take the official interval above the level estimated for the long term (2.4%, according to FED forecasts), that is, in restrictive territory”, pointed out Ricard Murillo, an analyst at CaixaBank. The market, Likewise, it estimates today that in the summer of next year the rates could be around 3%.