Sunday, October 1, 2023

The Federal Reserve has no plans to raise rates, but the door remains open

The Federal Reserve could announce that it is keeping its rates at the current level, but leaving the door open for possible additional increases. (Photo: 123RF)

Washington — The Federal Reserve could announce it will keep rates at their current level at the end of its meeting on Wednesday, but leaving the door open to possible additional increases, as the dilemma remains to rein in inflation without causing the economy to falter too much. a lot.

Falling inflation, imminent labor shortage that is beginning to decrease, flexibility in consumption: the ingredients are there for the American Central Bank to maintain its rates in the current range, from 5.25 to 5.50%.

The decision will be announced on Wednesday at 2:00 p.m. in a press release, which will be published at the end of the Monetary Policy Committee (FOMC) meeting that began on Tuesday morning.

A surprise is unlikely, according to market participants who almost all expect rates to remain stable, as assessed by the CME Group.

Does this mean that the rate hike cycle, which began in March 2022 in the face of very high inflation, is over? Or are additional increases expected in the coming months?

The Fed should be careful not to be assertive on this issue and seems more inclined to be cautious. In fact, if markets assume the end of rates, financial conditions could become less restrictive and prices could begin to rise again.

Read Also:  Daughter pleads with US and Germany to help her father sentenced to death in Iran

Ready to take on more if necessary

“The Fed’s message will be that higher key rates will remain on the table until the economy visibly slows and inflation approaches 2%,” says Steve Englander, head of U.S. macroeconomics at Standard Chartered and former economist at the Federal Reserve, in a note.

“The FOMC will be willing” to raise rates further in the future “if necessary,” he believes.

Therefore, the press conference that Fed Chairman Jerome Powell will hold shortly after the publication of the press release, at 2:30 p.m., will be the subject of special attention.

As well as updated economic forecasts, in terms of GDP growth, inflation, employment and rate variation.

Since March 2022, the Federal Reserve’s main interest rate has been raised 11 times, at a very rapid pace, with the aim of curbing inflation, which was at its highest level in more than 40 years.

This has since slowed significantly, despite a further acceleration this summer. In August it stood at 3.7% year-on-year, according to the IPC index.

Read Also:  United States: trade deficit widens in July

The Federal Reserve favors the PCE index, which wants to return it to around 2%, and which in July was 3.3% year-on-year. August data will be published on September 29.

Student loans, strike and shutdown

The situation also appears to be gradually rebalancing in the labor market, after two years of labor shortages, which caused wages to skyrocket. The unemployment rate rose to 3.8% in August, due to an influx of new workers, which should help calm inflation.

As for consumption, the engine of US economic growth, it has been vigorous since the beginning of the Covid crisis, fueling high inflation, but it seems to be showing the first signs of weakness.

And starting in October, millions of Americans will see their purchasing power even more reduced, because they will have to start paying their student loans again, after a two and a half year pause linked to Covid.

In addition, several dark clouds are hanging over the largest economy in the world.

Starting with the unprecedented strike started on Friday by the powerful automobile union, the UAW, between the “big three” American manufacturers, GM, Ford and Stellantis (resulting from the merger of the French PSA and the American Chrysler).

Read Also:  Seven injured in shooting at Caribbean festival in Boston

Another threat is that of a “shutdown,” a paralysis of the federal administration, if Republicans and Democrats in Congress do not agree on the government budget before the end of the month.

The Federal Reserve will meet in full this week for the first time since February, following the departure of former Vice President Lael Brainard, who left the country to lead the White House team of economic advisers.

She is replaced by Philip Jefferson, one of the governors of the Federal Reserve, while Adriana Kugler, formerly the United States representative to the World Bank, fills the vacant position of governor, becoming the first Federal Reserve official of Hispanic origin.

Subscribe to newsletters for free The topics and follow economic and financial news in Quebec and internationally, delivered directly to your email inbox.

With our three daily newsletters, sent in the morning, noon and night, stay up to date with the rises and falls of the stock market, the news of the day and find opinion articles from our guest experts that address the issues that concern the business . community.

The Federal Reserve Has No Plans To Raise Rates, But The Door Remains Open

Times of National
Times of National
Times of National To give more information about the latest happenings, news related to happenings in the country and abroad a casual understanding of the latest technology products and gadgets, celebrity news and gossip, latest movie news, sports, and cricket scores all you need Always ready to fulfill whatever else is becoming a part of our life nowadays.
Latest news
Related news


Please enter your comment!
Please enter your name here