The Federal Reserve has shown this Wednesday his intention to begin the withdrawal of monetary stimuli earlier than expected that have contributed to promoting Economic recovery since the beginning of the pandemic. Their governors now hope that the first two rate hikes of interest occur by the end of 2023, a date that modifies the March forecasts, when the bank hinted that the price of money would remain intact until 2024. The announcement has been coupled with a increased inflation forecasts for this year, which would be significantly above the 2% sustained over the time that the Fed has set itself as a target. A data to which Jerome Powell has removed iron by considering it as “transient”.
Changes in medium-term forecasts have not translated into immediate rudders. The US central bank has kept guys on a swinging fork between 0% and 0.25%, a very low level in historical terms, in force since March 2020, which has served to make credit cheaper and inject liquidity into the markets. The institution has also committed to maintain the massive purchase of debt and mortgage securities until you see “substantial progress” toward the full employment and a level of inflation that “moderately exceeds 2% for some time”, the two objectives of the dual Fed mandate.
If your forecasts are met, the Consumer price index will remain this year at 3.4%, to drop to 2.4% in 2022 and 2.2% in 2023, when the rate hikes would begin. Thirteen of the 18 members of the Fed executive committee They now expect the first rate hike to take place at the end of 2023, compared to the seven who were betting on the same scenario in March. “If we see that inflation exceeds the set goals, we are prepared to adjust our monetary policy”Powell said at the end of the agency’s monthly meeting.
Increased growth forecast
For the moment, the Fed is in no rush to put the sticks in the wheels of the economic recovery, which continues to accelerate despite the modest rebound in employment in recent months. “Progress in vaccination has reduced the spread of COVID-19“Says the central bank statement. “These advances, coupled with strong political support, have strengthened economic activity and employment “. The Fed now estimates that the US gross domestic product will grow 7% this year, five tenths more than expected so far. “The inflation has risen, but is largely a reflection of transitory factors”, Adds the statement.
That is the key to the Fed’s position, which contrasts with the concern expressed by some economists at the apparent overheating of the economy. Powell has stated that the rise in prices responds to conjunctural factors, such as increased energy demand or raw material shortage generated by the disturbances caused by the health crisis in the supply chain. Powell insisted that the recovery remains “incomplete and uneven”, as reflected in the employment data. More than seven million jobs that disappeared with the pandemic have yet to be recovered.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.