The Fed is thus continuing to tighten interest rates and is continuing its fight against inflation, but has indicated smaller interest rate hikes in the future.
“The Monetary Policy Committee believes that further increases in interest rate spreads will be appropriate to achieve a sufficiently tight monetary policy stance,” it said in a commentary on the interest rate decision. In future increases, the steps taken so far and the delays in the effect of monetary policy will be taken into account, it said. “Inflation is still high”.
This continued to reflect the consequences of the pandemic. In addition, the war in Ukraine is causing additional upward pressure on inflation and is having a negative impact on economic development. One is “very vigilant” with regard to further inflation risks.
“In all likelihood, that was the last XXL rate hike for this year,” explained economist Bastian Hepperle from Hauck Aufhäuser Lampe Privatbank. It will take time for the unprecedented massive tightening of monetary policy to have an impact on the economy as a whole. With each further interest rate hike, the risks of excessive tightening would increase. “From December onwards, the Fed will therefore decide to slow down the rate hikes,” predicts the expert.
LBBW expert Elmar Völker takes a similar view: “After today’s signals, the prospect of a slightly smaller interest rate hike of 50 basis points in December is becoming clearer – provided that the inflation data that will be available by then does not exceed all expectations again.”
The pressure on the central bank is great because the inflation rate remains stubbornly at a comparatively high level. It was the penultimate Fed meeting of the year – another meeting is scheduled for December. Looking ahead to the November 8 congressional election, consumer prices are also a drag on President Joe Biden and his Democrats. In the elections, the Democrats could lose their already narrow majority in Congress.
Solid labor market as an argument against recession
Surveys show that people are particularly concerned about inflation. According to the surveys, many voters see the Republicans ahead when it comes to economic competence. During the campaign, they denounce inflation for which they blame the Democrats, while it is also a consequence of the Russian war against Ukraine.
At the same time, the tighter monetary policy increases the risk that the central bank will slow down the economy so much that the labor market and economy will be stalled. Because if interest rates rise, private individuals and the economy have to spend more money on loans – or they borrow less money. Growth is slowing, companies cannot simply pass on higher prices, and ideally inflation is falling. However, some fear that the Fed is overdoing it – and steering the world’s largest economy into a recession.
The US Federal Reserve has always used the solid labor market as an argument against the economy sliding into a deep recession. Many companies complain about a shortage of workers. The economy also grew somewhat more strongly than expected in the summer. Biden took this as evidence of economic recovery and people’s resilience. The economy had shrunk in the first half of the year.
Source: Nachrichten
