Saturday, January 28, 2023

The Fed plans to slow rate hikes in December

The president of the US Federal Reserve, Jerome Powell, ventured on Wednesday that the central bank’s rate hikes will slow down “as soon as December”, thus hinting that the next increase will be 0.5 points instead of 0.75 such as those that have been approved in recent months.

During an event at the Brookings Institution in Washington, Powell pointed out that inflation remains too high to stop raising rates, and that the official interest rate will have to remain high for longer than expected.

“It seems likely to me that the final level of rates should be a little higher than what was included in our summary of economic forecasts for September,” he explained.

In its September predictions, the Fed expected to maintain the official interest rate between 3.9 and 4.6% by the end of 2022 -currently it is between 3.75 and 4%-, and between 3.9 and 4.9 in 2023, for end with a range of rates between 2.3 and 3% in the long term.

In his speech, Powell wanted to downplay the most recent economic data, which seems to indicate that inflation in the country has reached its peak, and warned that models have been predicting for a year that inflation would fall when in fact it has continued to rise.

The head of the Fed focused his intervention on the labor market, which, in his opinion, continues to be out of step -since there is more supply of jobs than demand.

Powell repeated his comments from early November, when the central bank announced its fourth consecutive 0.75 point rate hike, saying there was still room to bring inflation back to its 2% target without triggering a recession. . In October, the rate stood at 7.7% year-on-year.

The Fed chair considered that this margin is narrowing, but that it continues to exist and that recent employment data showing a drop in the demand for workers are encouraging.

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