As expected by the market, the Federal Open Market Committee (FOMC) of the Federal Reserve (FED) of the United States decided to maintain the current level of the monetary policy rate (between 5-5.25%)in the the first pause in its monetary adjustment since March 2022, although it expects new increases between now and the end of the year.
This unanimous decision of the Monetary Policy Committee (FOMC) should allow “assess additional (economic) information and its implications for monetary policy”, detailed the central bank in a statement. Also increased its growth forecast for the world’s largest economy to 1% in 2023 from 0.4% in March, and slightly lowered its inflation forecast to 3.2%, against the previous 3.3%.
Nevertheless, “Almost all of the participants” in the two-day meeting that ended this Wednesday “see it likely that new rate hikes will be necessary this year to bring inflation to 2%”the objective of the organization, declared in a press conference the president of the central bank, Jerome Powell, who also maintained that Subsequent increases will be made at “a moderate pace.”
An FOMC member expects even benchmark interest rates of 6-6.25% at the end of the year, and two anticipate stable rates at the current level. Fed officials they expect rates to then drop to 4.25-4.50% in 2024.
the fed too It increased its growth forecast for the world’s largest economy to 1% in 2023 from 0.4% in March, and slightly lowered its inflation forecast to 3.2%, from the previous 3.3%.
Wall Street turned red after the Fed announced that it plans further rate hikes.
Inflation, the data that influenced the Fed’s decision
Inflation eased sharply in May in the United States to its lowest in more than two years, data that was known on Tuesday when the Fed began its two-day meeting. Consumer prices rose 4% over 12 months from 4.9% in April, according to the CPI published Tuesday by the Labor Department.
In June 2022, inflation was at a 40-year high, at 9.1%. May 2023 is the lowest price increase level since March 2021.
Meanwhile, this Wednesday it was learned that the wholesale prices measured by the PPI index in the United States fell more than expected in May compared to April, mainly due to a decrease in the price of goods, according to data from the Department of Labor.
The report indicated that sales prices of US-manufactured goods and services provided by US companies fell 0.3% in May.an additional positive sign for the Federal Reserve.
The Fed had 10 consecutive rate hikes
The Fed has been seeking to stop price escalation for more than a year. For that it has a an effective tool but with a delayed effect, which is the rise in rates. This mechanism makes credit for consumption and investment more expensive, thus lowering the pressure on prices in the economy.
The Fed has an inflation target of 2% per year, considered healthy for the economy.
Source: Ambito
