Relief for Biden: US inflation fell more than expected in March: 5% per annum

THE inflation in the United States fell more than expected in March, to a 5% per annum, below the 6% in February, a figure that raises the Joe Biden government given that it is the lowest number in two years.

The new index could lead to Federal Reserve easing your interest rate policyalthough some experts estimate that it is not yet time to lower rates due to underlying inflation (counted without energy and food) stay high5.6%, up slightly from the previous month.

The Labor Department announced Wednesday that prices rose 0.1% in March, after rising 0.4% in February and 0.5% in January.

Economists expected inflation will reach 5.1% yearly and that it would have increased by 0.2 percentage points in March, which is why the figures are better than expected.

Inflation it has been declining since the middle of last yearwhen in August it reached a maximum of 9.1% due to the impact of expansionary policies in the pandemic, the difficulties in the supply chains and the increase in fuel prices due to the war in Ukraine.

The rate hike

The price drop was a consequence of improvements in the international situation, but above all for the adjustment program promoted by the Federal Reserve, which raised interest rates nine times in a row since last March in the fastest adjustment cycle in nearly half a century.

This rate hike served to contain inflation, but it also had consequences such as a cooling of the economy and a major impact on the financial system. which was reflected weeks ago with the bankruptcy of Silicon Valley Bank and Signature Bank, two medium-sized entities, whose performance was affected by the increase in rates and which were unable to return the money to their customers.

The authorities then came to the rescue of these banks and the deposits were guaranteed. But there has been a heated debate as to whether the Fed I was going too far with the adjustment without measuring the consequences in the financial system.

Fed officials raised the key rate by a quarter of a percentage point in March to a mid-range range 4.75% and 5%.

They went on to point out that stress on the banking system could end the rate hike campaign sooner than previously thought. The Fed will meet during the first week of May to consider its next interest rate move.

Over the past few days, Fed officials have sent out several signals about what the US central bank should do next.

“I think in times of financial stress like this, the right monetary policy really is prudence, vigilance and prudenceChicago Fed Chairman Austin Goolsbee said on Tuesday, echoing many economists who have called for the Fed to take a break from raising rates.

However, New York Fed Chairman John Williams said in an interview with Yahoo Finance on Tuesday that the bank they still have more work to do lower prices e “inflation is still very high.”

The 2% inflation target

In reality the index remains high, well above the average of 2.1%. of the three years before the pandemic and 2% of the Fed’s target.

There are some signs that are still worrying. Core prices, which exclude the volatile energy and food categories, increased by 5.6% in March compared to the previous year, slightly accelerating from 5.5% in February.

Core inflation, which economists see as a better predictor of future inflation, has remained stubbornly high, mainly due to accommodation expenses.

“It’s not going to move the needle for the Fed,” Steve Blitz, chief US economist at TS Lombard, told the Wall Street Journal. “The inflation problem doesn’t solve itself, you need higher unemployment to get there.”

The International Monetary Fund said in its Global Economic Outlook report on Tuesday that it expects U.S. inflation to fall to 4.5 percent this year and to fall close to 2 percent, the Federal Reserve’s target, in 2024, and it will stop at 2.3%.

ap