United States: FED raised interest rates by half a point, the highest increase in 20 years

The US Federal Reserve (Fed) raised the interest rate by half a point to 0.75%-1%, which it accelerated efforts to control rising inflation.

As reported by the AFP, it is the first increase of this magnitude since 2000. From the Fed, through a statement, they indicated that further increases will be “justified” in the future.

Rates are thus in the range of 0.75% to 1%, according to the official statement released at the end of the two -day meeting of the Federal Reserve Monetary Policy Committee.

Furthermore, the body will begin reducing your bond holdings beginning June 1st and warned that the war in Ukraine and the lockdowns in China were exacerbating inflation.

The increase in rates is intended to cool the economy. Inflation in the United States was the highest since January 1980. In March it reached 8.5% per year.

Inflation

The president of the Federal Reserve last year argued that inflation was a temporary phenomenon as a result of restrictions on the supply of post -pandemic products that caused bottlenecks and, therefore, price increases.

Currently, the central bank accumulated a total of 9 billion dollars in US debt.

In June, July and August, the Fed will throw away 30,000 million dollars in Treasury bills and $ 17.5 billion in mortgage-backed securities each month.

Beginning in September, these monthly numbers will increase to $ 60 billion and $ 35 billion respectively, and the process will end when levels deemed “slightly high” in what the bank considers “sufficient reserve” are reached.

The main goal of the US central bank so far is to mitigate the high inflation rate, which last March was at 8.5%, the highest recorded since 1981.

Next Wednesday, May 11 – within a week – the inflation data for April will be known, which analysts expect to be equal to or even higher than in March.

What this means for Argentina

The most likely scenario for the world today is stagflation, a period of low growth and rising inflation. “The question now is how long will the stagflationary process take,” the Financial Times said this week.

US GDP is projected to grow 2.8% this year according to Fed minutes released in March. Now the new projections will be known. The consensus growth for the world indicates that the rate for the world this year will be 3.3%. Before the war, the rate was expected to be over 4%.

An expected effect of the Fed’s interest rate hike is that demand for the dollar as a safe haven around the world has risen recently. The dollar-Wall Street Journal index hit its highest in two years. A stronger dollar means lower commodity prices. That can make up a threat to raw material -producing countries such as Argentina.

Source: AP and AFP