The Federal Reserve (Fed) raises interest rates for the third consecutive meeting and completes a sequence of acceleration in the rate of adjustment of its monetary policy. If in April the reference rate rose by 25 basis points and in May it did so by 50 basis points, this Wednesday it struck again with a rise of 75 basis points, the highest since 1994.
In this way, the central bank places the price of money in the range of 1.5-1.75%., after market expectations turned in recent days towards more aggressive moves by the monetary authority. The Fed plans to take rates to 3.4% by the end of the year which confirms an aggressive scenario with additional rises of 175 basis points from the level reached today.
The vision of the bank he directs Jerome Powelll is that the US economy can afford to raise rates faster without falling into recession in order to combat the inflation -which in May marked a maximum of 41 years at 8.6%- and cool the working marketAnother one of your concerns. The Fed’s decision was taken almost unanimously as only Esther George voted against the action and preferred to raise rates by 0.5 points.
“The general economic activity seems to have picked up after a slight drop in the first quarter. Job creation has been strong in recent months and the unemployment rate has remained low. Inflation remains elevated, reflecting pandemic-related supply and demand imbalances, higher energy prices and broader price pressures,” the Fed said in its statement.
Another focus of attention, in addition to the press conference with Powell, is the forecast diagram that accompanies the central bank’s statement on this occasion. According to the table, the Fed has lowered its outlook for the 2022 economic growth, now anticipating only a 1.7% increase in GDP, down 2.8% from its March estimate. At the same time it increases inflation forecast for this year to 5.2% year-on-year compared to 4.3% three months ago.
The Fed reminds that it will continue to reduce its balance sheet by selling or not reinvesting returns and repayments of its current portfolio of Treasury securities and mortgage debt. The plan announced in May pintends to reduce the 9 billion dollars of its balance gradually at a rate of 47,500 million dollars a month between June and August, although then it will double that speed to 95,000 million from September.