US: The Federal Reserve is expected to raise interest rates again today

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Expected widely that the officials of the Federal reserve raise borrowing costs by a quarter of a percentage point on Wednesday, the tenth consecutive increase the interest rate since March 2022. But investors and economists believe this it could be the last central bank move before the break.

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Fed officials face a complicated context ahead of this week’s meeting: Risks to the financial system are significant, but inflation also remains stubborn.

The banking system has been in crisis since the collapse of Silicon Valley Bank on March 10th. Government officials spent the past weekend racing to find a buyer for First Republic, which had struggled for weeks and was sold to JPMorgan Chase in a deal announced Monday morning.

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First Republic Bank branch in San Francisco.  Photo: AP

First Republic Bank branch in San Francisco. Photo: AP

Part of the turmoil in the banking sector is due to rapid increases in interest rates of the Fed over the past year.

Fed bankers should raise rates down just over 5% this weekup from nearly zero in March 2022.

After that quick series of adjustments, many lenders take losses on older securities and loans, which pay relatively low interest rates compared to new securities issued in a world with higher rates.

Despite the moves of the Federal Reserve, targeted curb inflation as the economy slowed, the job market maintained some momentum and price increases have shown a worrying staying power.

companies continue hiring at a solid paceand data released last week showed that wages continued to climb rapidly at the start of the year.

While inflation has slowed, it’s increasingly driven by utility price hikes that have shown little sign of cooling, which could make it harder to fight price hikes until the Fed’s slow and steady target is met.

Policymakers will give the public insight into how they think about the difficult economic times this Wednesday in their post-meeting statement at 2:00 p.m. (Wt. 3 p.m. Argentina).

Why the Fed will not publish new economic projections In this meeting, which is released only once a quarter, investors will follow the press conference with Fed Chairman Jerome Powell at 2:30 p.m. looking for clues about what comes next.

The Fed may suggest a pause

When Fed policymakers released their economic estimates in March, they expected to raise interest rates within a range from 5% to 5.25% in 2023.

Companies continue to hire at a rapid pace.  Photo: Robyn Beck/AFP

Companies continue to hire at a rapid pace. Photo: Robyn Beck/AFP

If officials adjust policy as expected this week, they will have relaunched rates at that level. The question now is whether they consider that sufficient, or whether policymakers think the economy and inflation are resilient enough that they need to adjust borrowing costs further to cool things down and reduce inflation altogether.

Jerome Powell, head of the Fed, Could you offer some signal during your press conference?or you can choose to leave it open the options from the Fed, which is what some economists expect.

“They don’t need to rule anything out,” said Blerina Uruci, chief US economist at T. Rowe Price. “The worst case scenario for them it would signal that they are done and then make the data force them make a U-turn”.

Investors expect Fed officials to pause after this week, keep rates stable for a few months and then start lowering them, perhaps substantially, to a range of 4.5% to 4.75% by the end of the year.

However, Fed policymakers have insisted on this they don’t expect to lower rates any time soon. And some have hinted that further hikes could be warranted if inflation and economic strength show staying power.

“Monetary policy needs to tighten further,” Christopher Waller, the Fed governor and one of the most inflation-conscious central bankers, said in an April 14 speech. “How much longer will depend on incoming data on inflation, the real economy and the degree of credit tightening.”

The banking turmoil will affect politics

Fed officials have made it clear that the turmoil in the banking system could slow down the economybut politicians don’t know to what extent.

Banking problems are different from other kinds of business problems, because banks are like the yeast in the sourdough that jump-starts the economy: if they don’t work, nothing else grows. They lend money to prospective home buyers, people looking to buy new cars or add garages, and businesses looking to expand and hire.

It is quite clear that the banks they will withdraw their loans at least a little in response to the recent turmoil. Anecdotal reports are already emerging across the country. The question is how dramatic this change will be.

“If the response to the recent banking woes leads to a financial crunch, monetary policy must do lesssaid Austan Goolsbee, president of the Federal Reserve Bank of Chicago, in an April 11 speech. “It’s not clear at least.”

He noted that private sector estimates suggest that the hit to growth from the banking turmoil could be equivalent to a rate hike. from one to three quarters of a point. That estimate came long before First Republic Bank’s demise, but after its troubles began.

c.2023 The New York Times Society

Source: Clarin

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