The United States Federal Reserve (Fed) announced a decrease of 25 basic points at its reference rate, to the 4%-4.25%areain a decision that was long anticipated by the market. The novelty was influenced by the bad employment data in the USA in recent months and to the detriment of inflationwhich is still above the year of 2% per year. For the remaining of 2025, Most members of the monetary authority project new cuts.
“Recent indicators suggest that the growth of economic activity was moderated in the first half of the year. Employment creation has slowed down and the unemployment rate has increased slightly, but it remains low. Inflation has increased and remains somewhat high, “said the Federal Open Market Committee (FOMC) in the statement that accompanied the decision.
In this regard, they explained that “uncertainty about economic perspectives remains high” and commented that “The downward risks for employment have increased”.
In his subsequent press conference, the Fed head, Jerome Powell, explained that “A good part of the deceleration probably reflects a decrease in the growth of the workforce due to lower immigration and less participation in the workforce. “
He argued that “labor demand has weakened and the recent pace of employment creation seems to be below the balance point necessary to keep the unemployment rate constant.”
Analysts of Balanz explained to Scope that “The Federal Reserve is putting a greater emphasis on the unemployment part of its mandatesince he pointed out that the balance of risk in the labor market deteriorated, with greater downward risks in employment, while It does not seem too worried about inflation”
Rates: what does the market expect and what does the fed expect
After knowing the novelty, expectations were consolidated in Wall Street that the cuts are continued in the next two meetings. According to Fedwatcha reduction of 25 basic points for the meeting of October 29 and another of equal figure for December 10, totaling 50 basic points is expected.
In the Fed they expect something similar. In addition to the change in monetary policy, The “dot plot” was known: Name with which the individual projections of the FOMC are known on where interest rates should be at the end of the current year and in the next.
“Fed members expect two additional 25 -point cuts in 2025 (October and December), beyond today, and a monetary (average) policy rate of 3.4% and 3.1% in 2026 and 2027%, respectively, below 3.6% and 3.4% expected in June “, stood out from Balanz in reference to “Dot Plot”.
In line, Diego Martinez BurzacoCountry manager of INVIU commented to Scope that at the Powell conference “a constructive vision was seen.” And he added: “The median of the interest rate path that Fed has in the head implies that there may be up to two more cuts in 2025, that is, 50 basic points below what we are“
The impact of tariffs on inflation
Powell also stated that the increase in tariffs by the Donald Trump government “has begun to boost the prices of some categories of goods, but Its general effects on economic activity and inflation are still to be seen“
In this regard, he said that “a reasonable base scenario is that the effects on inflation are relatively short, a specific change in the price level.” However, he added that “It is also possible that the inflationary effects are more persistent and that is a risk that should be evaluated and managed“
Anyway, he acknowledged that some of the most serious inflationary scenarios faced by the US economy disappeared: “Actually, since April, in my opinion, The risks of higher and persistent inflation have probably been reduced a bitand that is partly due to the fact that the labor market has weakened and GDP growth has slowed. ”
The presence of Miran and the “third mandate”
In favor of the 25 -point cut were 11 of the 12 members of the FOMC. The dissident vote was of the brand new governor of the Fed Stephen lookone of Donald Trump’s bishops in the agency, which preferred an even greater cut, of 50 basic points.
In this sense, Powell was consulted on whether the incorporation of Miran, who He was Trump’s main economic advisor since his return to the presidencycould question the independence of the Central Bank. However, reiterated the commitment of the Central Monetary Bank with its objectives to maintain inflation and unemployment under control, along with its autonomy.
“Today we welcomed a new member of the committee, as always, and the committee remains united in the achievement of our double mandate goals,” Powell said. “We are firmly committed to maintaining our independence. And beyond that, I really have nothing more to share, “he added.
Later, he was consulted by the “third mandate” that Mira mentioned during the last days: Maintain long -term rates at moderate levels. “We always consider it as double mandate: maximum employment and long -term price stability, because We believe that moderate long -term interest rates will result from low and stable inflation, and maximum employment“He replied.
Source: Ambito
