The Fed puts up with the rate hike but prepares for a hike “very soon”

The US Federal Reserve (Fed) has not moved interest rates yet, although it hopes to do so in March. Jerome Powell, chairman of the Fed, stated that “the committee intends to raise rates at March meetingassuming the conditions are right to do so.” Still, he said it is not possible to predict “exactly” what the monetary policy roadmap will be and they continue “with their eyes on all the risks”.

After their first meeting of the year, the members of the Federal Open Market Committee (FOMC) agreed keep rates between 0% and 0.25% and stated that “with inflation well above 2% and a strong labor market, the Committee expects that it will soon be appropriate to raise the target range“. In this way, the market’s expectation is maintained that it will do so in March in the face of high inflation that marks maximums since 1982 in the country.

The market awaited the Fed’s decision with uncertainty, fearing that the change in direction would penalize economic growth and cause a new recession. Powell has ruled out this scenario in the face of a buoyant labor market that he believes has enough room to raise interest rates without a negative impact. The statement issued after the two-day FOMC meeting highlights that “the job creation has been solid in recent months and the unemployment rate has decreased substantially”. However, it acknowledges that “supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to high levels of inflation“.

The inflation rate in the country in the month of December reached 7%, maximum for 40 years, while unemployment is close to 4%. In that sense, Powell indicated that “the economy no longer needs sustained high levels of support from monetary policy.” In addition, he added that “most FOMC participants agree that labor market conditions are consistent with maximum employment And that’s my personal opinion.”


Despite not specifying exact dates, Powell has confirmed the order of the measures to combat inflation. First, the asset purchase program will conclude. The Fed decided continue to reduce the monthly pace of your net purchases, to finish them at the beginning of March. As of February, the Committee limits purchases of Treasury bonds to $20 billion per month and purchases of mortgage-backed assets to $10 billion per month. Total, purchases of assets worth 30,000 million monthly, compared to the 120,000 million that was initially launched to buy when the pandemic broke out.

Since the asset purchase program will end in March, the central bank will have freedom to adjust the cost of credit. In addition, Jerome Powell confirmed that once the asset purchase program is over, they will begin to reduce their balance sheet in an “orderly” manner. At the press conference after the meeting, he explained that the quantitative adjustment will be carried out “in a predictable manner, mainly through adjustments in reinvestmentsPowell indicated. The balance of the Federal Reserve reaches 8.7 trillion dollars.

After knowing the position of the Fed, Keith Wade, chief economist and strategist at Schroders, says that “fears that the price rebound will spill over into a tight labor market and push up wages means the risk of entrenched inflation remains significant and higher wages are likely to rise.” interest rates”. The rise would not be unique: “we expect rates to continue rising this year and next until reaching 1.5% in June 2023“.

Investors have reacted moderately to the Fed’s conclusions, although the main US indices, which they opened the session with raises, they have deflated to the skyrre The Dow Jones Industriales, its main indicator, rose 0.62% at the opening and finally closed with a drop of close to 0.4%. For its part, the composite index of the technology market Nasdaq It has ended the day in green although practically despite the fact that at the opening it rebounded 1.86%. Furthermore, the selective S&P 500 also registered losses, of 0.2%.

Source: LA INFORMACIÓN – Lo último by

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