The Federal Reserve (Fed) pauses, after a career of ten consecutive increases in interest rates, now located in the range of 5-5.25%, which is the highest level in 16 years. The central bank of the United States thus marked a new stage in the battle against inflation, opened in March 2022, but warned that the work is not finished and most of the governors indicated two new increases throughout this year.
The price of eggs in the United States fell 13.1% in May, the biggest monthly drop since January 1951. Gasoline has fallen 20% cheaper in the last twelve months,
These two goods were two of the very sensitive elements for the Federal Reserve when in March 2022 it opened the spigot of its aggressive monetary policy to combat the alarming increase in inflation. Its high point occurred in June of last year, when it stood at 9.1%, something not seen for half a century.
This Tuesday the data came out that the consumer price index had fallen to 4%, a better figure than expected, almost one point less compared to the 4.9% in April and a decline of more than half compared to the ceiling reached .
Despite being still far from the 2% that the Federal Reserve marks as a healthy framework, and the verification that some high prices are not moving, the analysts anticipated this decision given the good result of inflation and the certification of banking stability, waiting to specify if the increases would be resumed at the July meeting or later.
The idea of the pause was specified by the president of the Fed, Jerome Powell, and it was specified in the minutes of the last meeting, in May, in which a quarter point was applied, with the position of a minority that wanted to go to more, up to 5.5%.
Establishing this break is intended to give yourself an opportunity to observe how the movements of central banks over the last year are affecting the economy in real time. The full extent of the high costs of money, analysts stressed, may not be felt until late 2023 or even 2024.
Through 15 months and ten consecutive hikes, the Fed has sped up to tame much higher-than-normal inflation, amid the aftermath of the pandemic and in the midst of war over Russia's invasion of Ukraine, at the fastest pace. in decades.
Central bank governors warned that they could not give up their fight prematurely because a mistake would make it easier for inflation to entrench, which would force an even harsher crackdown to slow the economy.
"We probably need a little more adjustment, but it is not clear how much," economist Blerina Uruci told Reuters regarding upcoming new rate hikes. “When there is a lot of uncertainty it is advisable to exercise caution,” she added.
The goal of fighting inflation has run into a more resilient job market than previously thought. The unemployment rate remains at a very low level, at 3.7%, while 339,000 jobs were created in the US last month, a number well above forecasts, with a force that defies the harsh policy of Federal Reserve restraint.
