“Exactly how much and then what trajectory will depend on how the economy performs over the next few weeks and months. We’re going to get a lot of data … before our next meeting” on September 20-21.
The fed raised its benchmark overnight interest rate by three-quarters of a percentage point on Wednesday in an effort to cool the sharpest bout of inflation since the 1980s, with Chairman Jerome Powell saying another “unusually large” hike could be in the offing. appropriate at its next meeting if price pressures have not subsided sufficiently.
“Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, rising food and energy prices, and broader price pressures,” the Federal Committee on Open Market (FOMC), in charge of setting rates, by raising them to a range between 2.25% and 2.50% in a unanimous vote.
The FOMC added that it remains “very vigilant” to inflation risks, a point Powell emphasized during his remarks at the post-meeting press conference, saying it was “essential” to bring down inflation.
Federal Reserve officials are “well aware” of the difficulties inflation imposes on American households, particularly those with limited means, Powell said, and will not back down until presented with “compelling evidence.” that it is going down.
“Restoring price stability is something we have to do,” he added. “There is no option not to do it.”
But while employment growth has remained “robust,” “recent spending and output indicators have softened,” the statement added.
Still, Powell insisted the economy has underlying strength.
“I don’t think the United States is currently in a recession,” he said, noting that unemployment remains near a half-century low, and there is solid wage growth and job growth. “It wouldn’t make sense for the United States to be in a recession.”
Regardless, bringing inflation down to target “is likely to imply a period of below-trend economic growth, and some weakening of labor market conditions, but these outcomes are likely necessary to restore price stability and set the foundations for maximum employment and long-term price stability.
LIKE IN THE 1980S
With last month’s 75 basis point hike and increases in May and March, the Federal Reserve has raised interest rates a total of 225 basis points this year, amid its fight against inflation.
The interest rate is now at the level that most Fed officials view as having a neutral economic impact, effectively marking the end of pandemic-era efforts to encourage household and corporate spending. companies with cheap money.
The latest monetary policy statement offered little explicit guidance on what the Fed might do next, a decision that will largely depend on whether upcoming data shows inflation starting to slow.
Given the latest data showing consumer prices rising at more than 9% a year, investors expect the US central bank to raise the policy rate by at least half a percentage point at its September meeting.
“While another unusually large increase might be appropriate at our next meeting, that’s a decision that will depend on the data we get between now and then,” Powell said.
“We will continue to make our decisions meeting by meeting, and we will communicate our thinking as clearly as possible,” he added.
Futures markets linked to Fed monetary policy expectations tipped a bit toward a more dovish rise for the next meeting as Powell spoke.
“From here, the Fed is likely to slow its pace of tightening, reassured by the likely spike in inflation and the reversal of inflation expectations as oil prices have fallen,” Seema Shah said in a note. Chief Global Strategist at Principal Global Investors.
“However, with the labor market still a picture of strength, wage growth still uncomfortably high, and core inflation poised to decline at a glacially slow pace, the Fed certainly can’t stop tightening, nor can it change too much. the gears”.
In the US Treasury market, key in transmitting the Fed’s decisions to the real economy, the two-year bond yield, the most sensitive to monetary policy expectations, moved lower. The return on the 10-year note was little changed.
Source: Ambito
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