Something seems clear from the latest central bank meetings. New increases in interest rates – even if they are punctual – cannot be ruled out this year. And potential drops in the price of money are delayed. All this despite the almost radical rate increase strategy for more than a year. The war against inflation has not been won. We understood this from the central bank meetings these days, including the ECB and the Bank of England. The United States Federal Reserve, after last Wednesday's meeting, makes it clear that its fight against inflation is not a series of impulsive movements. With a measured and slow strategy, it has demonstrated the subtlety required to navigate the complex inflationary seas and uncertain forecasts. What does your decision to maintain interest rates tell us? This is not simply caution, but a conscious assessment of the economy moving forward at a solid pace. While inflation has been a more persistent beast than many anticipated, the Fed has taken a more nuanced approach.
The economic forecasts reveal not only the resilience of the US economy, but also cautious optimism about the future. The dot plot (the famous dot plot with which the central bank's main decision makers express their projections on interest rates) indicates a possible additional rise of a quarter of a point this year, but also suggests that there for the entire rise and that there is room to lower rates if necessary. The market, that ephemeral barometer of confidence, reflects the complexity of the situation. Some expect another rate hike this year, but others believe the Fed will not raise more in 2023, although the latter are becoming fewer. Revealing was the intervention of Jay Powell – president of the Fed – this week, who emphasized that maintaining stable rates does not imply that monetary policy is restrictive enough to control inflation, due to factors such as current energy and uncertainty. Lately another explanation has emerged: such high inflation had not occurred in more than 30-35 years, so the current generations in the labor market did not experience a similar period. Inflation expectations, so important to defeating inflation, may be behaving differently than in the 1980s.
With two Fed meetings left this year, will it opt for another bold move? The next two-day Fed rate meetings are on October 31 and November 1, and December 12 and 13, so we will know new macro data on the American economy. Much of the market expects another pause in November and that the decision on whether to raise rates further for December will be put on hold. The market only expects, at most, a rise of more than 0.25 points. The ECB may find itself in a similar situation. We will have to continue waiting.
