The Federal Reserve (Fed) applies the pause after a run of ten consecutive increases in interest rates, now located in the range of 5%-5.25%, the highest level in 16 years.
It’s time to reassess. The central bank of the United States marked a new stage in the battle against inflation. He warned, however, that the job is not over and that most Fed governors expect rates to rise again this year perhaps a couple of times. They could be placed at 5.75%.
“There has been no discussion about upcoming meetings”, said Jerome Powell, president of the Fed, to avoid concreting these hikes. “There is no decision about July”, he said.
The price of eggs in the United States fell 13.1% in May, the biggest monthly drop since January 1951. Gasoline has fallen 20% over the past twelve months.
These two goods were two of the sensitive elements for the Federal Reserve when in March 2022 it opened the tap of its aggressive monetary policy to combat the alarming increase in inflation. Its peak occurred in June of last year, when it stood at 9.1%, something not seen for half a century.
It was reported on Tuesday that price rises had eased to 4%, a better-than-expected figure, almost a point less than April’s 4.9%, far from the ceiling reached in middle of last year.
Despite the fact that it is still far from the 2% that the Federal Reserve marks as healthy and the realization that some high prices are not moving, analysts anticipated this decision because of the latest inflation data and the certification of the banking stability.
The Fed also made a review of the economic projection. GDP growth will reach 1% this year, an improvement on March’s 0.4%, while unemployment would stand at 4.1% (now at 3.7%), below 4 .5% of the previous forecast. Inflation is also reduced, which would remain this 2023 at 3.2%, one tenth less than what was predicted in March.
The idea of ??the pause was specified by Powell, and was detailed in the minutes of the last meeting, in May, in which a quarter point was applied, with a minority that wanted to reach 5.5%.
Establishing this break is intended to provide an opportunity to observe how central bank moves over the past year are affecting the economy in real time.
The full extent of the high money costs, analysts stressed, may not be felt until late 2023 or even 2024.
“This pause allows us to judge additional information and its implication in monetary policy,” said Powell.
“We need time to notice the full effect of containment. We have raised interest rates by five points and we have not yet seen the impact in some sectors”, he added.
Powell noted that the economy, after slowing, has continued to expand at a modest pace, gains in the labor market have been “robust”, unemployment remains low and “inflation remains high , well above the target, maintaining the pressure, he stressed.
Over the course of 15 months and 10 consecutive rate hikes, the Fed has pushed to tame much higher-than-normal inflation – amid the aftermath of the pandemic and in the middle of a war over Russia’s invasion of Ukraine – with accelerated growth not experienced in decades. Fed governors warned they could not give in prematurely because a mistake would make it easier for inflation to take hold, forcing an even tougher crackdown to slow the economy.
“A little more adjustment is probably needed, but it is not clear how much,” economist Blerina Uruci told Reuters about upcoming rate increases.
“When there is a lot of uncertainty, it is advisable to act with caution”, he clarified.
The aim to fight inflation is running into a more resilient labor market than expected, Jerome Powell agreed. “The demand exceeds the supply of workers”, he reiterated.
