Everything was frozen. Last night, the United States Federal Reserve left the price of money in the 5.25%-5.5% range, as the market had predicted, the highest level in 22 years. The entity chaired by Jerome Powell opted for this prudent position for several reasons.
Raising rates again could have serious impacts on the real economy, which is already heavily indebted. Condo sales this year could fall to the lowest level since 2011, according to Fanny Mae. A loan for the purchase of the car already has interest of 7%, the highest in 15 years. The 15-year mortgage loan rate has gone from 2.3% to 6.5% in just over a year and a half. And, to finance themselves in three months, the US has to pay 5.4%. Less than a year ago it was enough to offer 0.5%.
The other explanation for the Fed's pause is more strategic and lies in timing. Inflation has not yet been tamed and the recent rise in the price of a barrel of oil could reawaken prices. In fact, the general inflation index exceeded expectations in August and rose again to 3.7% from 3.2% the previous month, while in monthly terms prices increased by 0.6%, the fastest pace in fifteen months.
“Tighter credit conditions for households and businesses are likely to impact economic activity, hiring and inflation. The extent of these effects remains uncertain. The Committee remains very attentive to inflation risks,” the statement reads.
The central bank thus prefers to have a bullet in the chamber or a certain margin of intervention to raise rates in the future, if necessary, without now burning out the cartridge ahead of time. The data forces the US central bank to opt for “aggressive maintenance,” explain Ebury analysts.
In fact, the Fed suggests that, despite everything, the United States is in a situation where it could endure another rate hike if necessary. It has doubled its growth forecasts for this year compared to June, from 1% to 2.1%.
“Recent indicators suggest that economic activity has been expanding at a solid pace. Job creation has slowed in recent months, but remains strong, and the unemployment rate has remained low,” they say.
Another detail of the projections is that the Fed foresees interest rates of 5.6% for this year. That is, one tenth more than current levels, so another rise is in the order of things. For 2024, 5.1% is forecast against the 4.6% previously forecast. This means – in his words – that “the fight against inflation will take time” and that cuts in the price of money will have to wait. “We are waiting for data to conclude that interest rates are at a sufficiently restrictive level,” Powell said.
A big difference with the ECB is that the price of money in the United States is higher than general inflation. An aspect that the Fed president himself highlighted to say that “we are close to where we need to be.” But not yet.
