Monday, February 6, 2023

The Federal Reserve is preparing to moderate the hike in interest rates

United States Federal Reserve (Fed, Central Bank) Preparing to reduce interest rates hike next weekEconomists predict, at a time when aggressive growth has decided to counter inflation, that has a knock-on effect on the economy.

(Read: IMF and World Bank warn that global economic recession is coming).

But analysts forecast a half-point jump in the Fed’s benchmark lending rate amid efforts by the US central bank to cool demand by reducing consumer costs.

loss Homes are grappling with red-hot prices in the world’s biggest economy, The situation was made worse by rising food and energy prices following Russia’s invasion of Ukraine in February.

To make borrowing costlier, the Federal Reserve has raised interest rates six times this year. Currently sitting in a range of 3.75 to 4.00%, including four exceptional increases of 0.75 points each.

(Also: The impact that the political crisis in Peru leaves on its economy).

“We think the stage is set for a (half-point) increase this month,” said Oren Klachin, an analyst at Oxford Economics, with interest rate sensitive areas such as housing and inflation showing signs of relaxation. The decision will be announced after a two-day meeting of the Fed’s Monetary Policy Committee (FOMC), which begins on Tuesday the 13th.

Policy makers closely monitor wage growth for fear that higher wages will increase inflationary pressures. ,The Fed’s main concern is actually wage growth.said Martin Wurm, an analyst with Moody’s Analytics.

“It doesn’t mean that (the reference rate) will keep going up forever, but it does mean that it will go up a little bit and … it will stay high until next year,” Wurm told AFP. With a higher benchmark rate, it becomes more expensive to borrow money for major purchases like cars and property, or to expand businesses.

Despite the Fed’s tightening,Consumer inflation in the United States was 7.7% year-on-year in OctoberWhile job creation remained strong, markets were jittery about the central bank prolonging its aggressive campaign.

(Read: Nobel Prize in Economics warns of urgency to regulate shadow banking).

,Strong job market, rising wages and strong household balance sheets (…) are key areas of support” As for demand, said ING economist James Knightley.

household wealth $30 trillion has risen in 2020 since the start of the pandemicThat, he said, allows consumers to dip into their savings as the cost of living rises.

,However, we are also seeing increased use of consumer loans and credit cards to finance expenditures, which may indicate some signs of stress and efforts by households to maintain their standard of living.Knightley told AFP.

Fed Chairman Jerome Powell suggested a possible easing of rate hikes in December, although he warned they could remain high “for some time”. This moderation time is less important than questions about how much How much more do you need to raise rates and for how long should restrictive policy be maintainedhe added in a speech in late November.

yes ok Many economists believe there is a 50-50 chance of a recessionAccording to Worm, this is likely to mean a small contraction in GDP. “We wouldn’t expect a major financial crisis like in 2008,” he said, adding that “large sectors of the economy are still in pretty good shape.”

The US economy rebounded strongly after COVID-19, while the lockdown period also brought profits for US companies, which explains the resilience despite the Fed tightening. Knightley, the ING analyst, said policymakers take the mindset that the risk of doing too little is greater than the risk of doing too much. ,They will tolerate recession to beat inflation“, He added.

AFP

Nation World News Desk
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