It represents the seventh rise so far this year and leaves the price of money between 4.25% and 4.5%, its highest level in the last 15 years.
The Federal Reserve of the United States did not deviate from the expected script and raised interest rates half a point after two days of meeting, reducing the pressure somewhat with respect to the previous four increases of three quarter of a point, but leaving the door open to higher increases than expected in 2023. The rise represents the seventh increase so far this year and leaves the price of money between 4.25% and 4.5 %, its highest level in the last 15 years.
The report on consumer prices on Tuesday has been able to help maintain the road map provided by the US Central Bank. The modest increase of 0.1% compared to the month of October has left inflation at 7.1% year-on-year, a decrease of 0.6% and two tenths better than the forecasts of most of the economists.
However, Fed officials indicated that the price of money could reach 5.1% before the end of 2023, half a point above the initial forecasts and one more twist on mortgage loans. and credit cards that could hit the job market and the economy in general hard.
Analysts expect unemployment to drop from the current 3.7% to 4.6%, a considerable worsening from previous forecasts that would lead to recession, with high unemployment for the next three years. If the forecasts come true, 2023 will be another year of economic growth of around 0.5%.
In the medium term, Fed officials expect the price of money to fall to 4.1% by the end of 2024 and to 3.1% before the end of 2025 in anticipation of how long inflation may take. n to return to the set goal of 2%. Markets on Wall Street were quick to react negatively to the forecasts. The main indices saw their mid-session gains vanish and settle in the red.
Despite the dark clouds that are coming, the current feeling is one of momentary relief. Although prices have not yet begun to experience the long-awaited decline in many sectors, there is a respite at gas stations. The almost 7 dollars per gallon -3.78 liters – that was reached in certain parts of California have dwindled to 4 dollars today. The national average is 3.2 dollars, almost two dollars less than six months ago.
“The overall picture is looking up,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics in an interview with The New York Times. “It’s a mixed kind of good news, but it wouldn’t be fair to say that inflation is falling everywhere. There are still pockets of big increases.” President Joe Biden , for his part, spoke from the White House after the information was made public. “Inflation is coming down in the United States,” he said, noting that it was news “that provides some optimism for the Christmas season and, I would say, next year.”
The news changes the forecasts for the next Fed meeting, scheduled for February 1 , where an increase of a quarter point was expected. The expected slowdown in monetary policy still seems a long way off, with the world’s leading economy going through times as uncertain as they were atypical, taking into account that the last time the price of money more than a quarter of a point was 22 years ago.
In 2022 alone, this kind of so-called aggressive increase has occurred five times. In four of them up to three quarters of a point in a row, the last one in November. The end of this painful trend for the pockets of the average American still seems distant.
Still, some voices on Wall Street argue that further tightening is no longer necessary. “This bullish cycle should end right now,” Tom Porcelli, chief US economist at RBC Capital Markets, wrote in a report. “We’ve been saying for the past few months that the Fed is waging war on yesterday’s inflation. … There’s no need at this point to continue raising rates but of course they will.”
