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Sunday, December 10, 2023

Interest rates in the US. The Fed left them unchanged at 5.25-5.50%.

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The American Federal Reserve, i.e. the Fed, left interest rates in the US unchanged at 5.25-5.50 percent – said in a statement after the meeting. The US central bank announced that additional tightening of monetary policy will depend on data.

The decision on interest rates was in line with market expectations and was taken unanimously. In the current cycle of tightening monetary policy, the Fed has raised interest rates. by a total of 525 bps. Interest rates In USA are the highest since 2007, and the pace of their increase is the highest since the early 1980s, when Paul Volcker was the Fed president.

Fed announcement

“The Committee will continue to assess additional information and its impact on monetary policy. In determining the amount of additional tightening that may be appropriate to return inflation to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the delays “monetary policy affects economic activity and inflation, as well as economic issues and developments in financial markets,” the statement read after the meeting.

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“In assessing the appropriate monetary policy stance, the Committee will continue to monitor the impact of incoming information on the economic outlook. The Committee will be prepared to appropriately adjust the monetary policy stance in the event of the emergence of threats that may impede the achievement of the Committee’s objectives. In its assessments, the Committee will take into account a wide range of information, including readings on the situation on the labor market, inflation pressure and inflation expectations, as well as the development of the financial and international situation,” it added.

Impact of tighter financial and credit conditions

The Fed reported that the US banking system is resilient, but a tightening of credit conditions can be expected.

“The latest indicators show that economic activity expanded at a rapid pace in the third quarter. Employment growth has been moderate since the beginning of the year but remains strong and the unemployment rate remains low. Inflation remains elevated,” it said in a statement after the meeting.

“The U.S. banking system is healthy and resilient. Tighter financial and credit conditions for households and businesses will likely weigh on economic activity, employment and inflation” – added. The Fed said it will continue to reduce its holdings of Treasury securities, agency debt securities and agency mortgage-backed securities, consistent with previously announced plans

The next meeting of the Reserve is scheduled for December 12-13.

Powell: The process of permanently reducing inflation has a long way to go

The process of permanently reducing inflation has a long way ahead of it, said Fed Chairman Jerome Powell at a conference after the meeting of the US Federal Reserve. He added that future decisions will be made based on data.

“Despite elevated inflation, long-term inflation expectations remain highly overstated, as reflected in a wide range of surveys of households, businesses and forecasters, as well as measures from financial markets,” the Fed chairman said.

– Inflation has fallen since the middle of last year, and readings over the summer were quite favorable. However, several months of good data are just the beginning of what is needed to build confidence that inflation is falling sustainably towards our target, he added.

Powell indicated that future decisions will be based on data.

– Given how far we have come, and the uncertainty and risks we face, the economy is moving cautiously. We will make decisions on the extent of additional policy tightening and how long it will remain restrictive based on the totality of incoming data and monetary risks, the FOMC chairman said.

– The monetary policy stance is restrictive, which means it has an impact on inflation, and the full effects of the increases are not yet fully felt – he added.

The Fed president announced that the FOMC is closely monitoring the increase in bond yields.

– Financial conditions have tightened significantly in recent months, among other things as a result of higher yields on long-term bonds. As persistent changes in financial conditions may impact the path of monetary policy, we are closely monitoring developments in the financial market, he said.

– (…) The tighter financial conditions we see from higher long-term bond yields, as well as from other sources such as a stronger dollar and lower equity valuations, may be important for future interest rate decisions, he added.

Fed President: We are not thinking about cuts

The FOMC chairman indicated that the Fed is not currently considering cutting interest rates.

– The Committee is not currently thinking about… interest rate cuts. We are not talking about interest rate cuts. We remain very focused on the first question, which is whether we have achieved a tight enough monetary policy stance to sustainably reduce inflation to 2% over time. – pointed out the Fed president.

– The next question will be how long we will keep interest rates high. We have said that we will keep policy tight until we are confident that inflation remains on a sustainable path to 2%. But honestly, we’re very focused on the first question at the moment. The question of interest rate cuts does not arise because it is very important to answer this first question as close to the truth as possible, he added

The Fed president announced that the fight against inflation may require slowing down economic activity.

– It is not certain, but we will probably have to see a slowdown in growth GDP and easing labor market conditions to fully restore price stability, he said.

– The latest indicators suggest that U.S. economic activity is growing at a strong pace, well above previous expectations. (…) We are closely following the latest data showing the resilience of economic growth and labor demand. Signs of GDP growth remaining above expectations or lack of tension in the labor market may threaten further progress in reducing inflation dynamics and justify further tightening of monetary policy, he added.

Main photo source: PAP/EPA/JIM LO SCALZO

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