WASHINGTON– The US Federal Reserve (Fed, Central Bank) this Wednesday maintained its reference interest rates between 5.25% and 5.50%, the highest level in more than two decades, but its president, Jerome Powell, reassured the market by discarding the possibility of a new rise.
After two days of meeting of its Monetary Policy Committee (FOMC), the Fed highlighted the “lack of progress” towards its inflation target of 2% annually, in a context of rebound in consumer prices, something that conservative and independent economists have been warning about since the beginning of 2023 while contradicting the current decreasing inflation figures that Joe Biden’s government has given in the last 14 months.
Although Powell maintained that It will take “more time than expected” to trust in a decrease in inflation in the United States, he assured that it is “unlikely” that there will be a new rate increase. But she said something similar with Treasury Secretary Janet Yellen during the price spike between 2021 and 2022, when she stressed that inflation was temporary and there was no reason to worry. A year later, inflation levels reached 9.1%, the worst in almost five decades, and some experts considered the figure to be much higher than the government said.
In a press conference, Powell indicated “it is unlikely that the next movement in rates will be upwards”, since monetary policy is “sufficiently restrictive” in the long term. However, the situation could change.
Wall Street, which remained doubtful all day, soared after Powell’s words, and then closed unevenly: the Dow Jones index gained 0.23%, the technology Nasdaq lost 0.33% and the S&P 500 lost 0.34% %.
In addition, the FOMC indicated that starting in June it will begin to more slowly reduce its volume of assets in its portfolio, a movement that heralds a possible beginning of monetary policy easing. Some analysts do not see it that way and affirm that it is part of a pressure campaign from investors, Wall Street and the large left-wing press in the US.
The Fed increased its holdings during the COVID-19 pandemic, buying to flood the market with liquidity and sustain the economy. Then, as it raised its interest rates, it began dumping Treasury bonds, thus removing money from the market.
Keeping rates high means discouraging the credit that fuels consumption and investment. In general, any movement that reduces liquidity in the economy tends to slow price increases.
Expectation versus reality
Until recently, markets were expecting to see a reduction in interest rates starting in June. Now they are aiming more for September or even November, according to information collected by CME Group.
It remains to be seen if the real data finally reaches the Oval Office and not those that generate more doubts than credibility. More than 60% of Americans can barely make ends meet, as a result of the disastrous economic policies implemented since Biden took his seat in the Oval Office of the White House, including the initial war against the oil companies Americans for the search for a “fictitious transition” towards supposedly “clean” energies.
“The timing of the first rate cut will depend on a lasting moderation in inflation,” said Nancy Vanden Houten, an economist at Oxford Economics.
The message is that “rate cuts are postponed, not canceled,” said Kirshna Guha, an economist at Evercore, an investment consultancy.
The first quarter of 2024 supposedly showed what the Fed had expected since it began raising its rates two years ago: a moderation in US GDP growth, according to data from the Biden administration.
In reality, this moderation has been coming since the beginning of 2023 while consumers have seen how the prices of the basic basket continue to rise, without giving credit to the reduction in inflation that the Federal Reserve and the major media outlets are talking about. left in the US.
The growth of the US economy was weaker than expected in the first quarter, at 1.6%, compared to 3.4% in the fourth quarter of 2023, according to the first estimate from the Department of Commerce released in the last week of April .
Analysts expected gross domestic product (GDP) growth of 2.2% between January and March, according to the Market Watch consensus.
In comparison with the last quarter of 2023, the economy expanded just 0.4% in the first quarter of the year.
But inflation “has picked up” in recent months. Economists claim that there is no such reboundbut prices have never fallen in the manner referred to by the Central Bank.
In the inflation index, the CPI for consumer prices, last month “registered” 3.5% in 12 months, a figure that independent economists disagree with.
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Source: With information from AFP and other sources.
