The Federal Reserve (Fed) is in a difficult situation to understand, according to its president, Jerome Powell. They catch on with monetary policy, but economic growth soars and the labor market remains strong. This is the great paradox, while inflation remains "well above" its target of 2%.
In this way, the central bank of the United States kept interest rates at 5.25%-5.50% this Wednesday, the highest level in 22 years. This money price was marked at the July meeting, while a pause was established in the September and November meetings, after eleven consecutive increases since March 2022, four this year.
But these two consecutive pauses do not mean that more hikes are ruled out soon, even for the next meeting in December, given the surprise with which the governors of the Fed have met in the application of their restrictive policy in the price of money It seems that the country's economy is resisting everything.
The Dow rose after the decision was announced, the dollar pared its gains against other currencies and Treasuries fell.
One thing was clear in Powell's press conference after the two-day meeting concluded. They still don't see the end of this tightening, or they don't want to advance an omen in such a complex and volatile global and national perspective. Analysts postpone at least until June the beginning of the relief.
"Until when?", they asked the president of the Fed. "We are not thinking or talking about a rate cut", he replied.
From his words it was deduced that patience must be maintained, despite the fact that there are experts who predict that if this new rise does not materialize in December, the upward period would have been concluded.
"The question we are asking ourselves is: should we raise them even more?" reflected Powell. And he rather showed a willingness to follow the route started 20 months ago with a restrictive policy that "has put pressure on inflation", but to reach the 2% goal it is necessary to lower economic growth and for the labor market to lose strength . "Citizens continue to spend", he remarked as an indicator of an unfinished task.
Although he acknowledged that financial conditions have tightened significantly, and therefore may have a significant impact on the real estate sector, and that high rates and a strong dollar are issues to consider going forward, Powell he reiterated that the fight against inflation cannot be called to an end when it has not reached 2%, the labor market has rebalanced, but remains strong and GDP in the third quarter is much stronger than expected. So "this restrictive policy must be persistent", he said. He even added that "we are not sure that this policy is restrictive enough".
"Things are fluctuating and this persistence is not what we see in financial conditions, and we want permanent changes to materialize", he stressed.
"Long-term rates cannot be a reflection of the policy moves that are expected of us. If we do not maintain these measures, then there will be a setback in this race", he said.
"A few months with good inflation data is just the beginning", he reiterated.
"The best thing we can do for the United States is to achieve price stability", he stressed, aware in his answer that this policy harms especially those who have a worse financial situation.
His argument for maintaining this restrictive policy is that it is still possible to slow economic growth and for the labor market to loosen without serious consequences. "We have not included the recession in our forecast," he clarified.
Powell reiterated that the full impact of this restrictive policy has yet to be felt and, in any case, it is not yet time to determine the extent of possible additional tightening.
"We have not made any decision about future meetings", he insisted in view of the resilience of the economy. Powell stressed that "there are many doubts about the duration of this policy". And he postulated: "Given how far we have come, along with the uncertainty and challenges we face, the committee proceeds with caution."
