Federal Reserve Cautiously Addresses Issue of Higher Interest Rates Despite Confidence in Goal Decrease

Despite a recent recovery in inflation, the US central bank (Federal Reserve) is expected to cautiously address the issue of higher interest rates next Tuesday and Wednesday, despite a slowdown in growth USA in the first quarter.
Nancy Vanden Houten, an economist at Oxford Economics, expects the Fed to say: “its confidence in a sustainable return of inflation to 2% has diminished.” She says he would then be “prepared to keep interest rates at current levels, until he sees clear signs of a downward trend in inflation.”
Until a few weeks ago, markets were hopeful that interest rates would start falling in June. But experts are betting that this will happen in September, or even in November, according to estimates from the financial services group CME. This is because inflation, which slowed significantly in the final months of 2023, has since accelerated to 2.7% at an annual rate in March, according to the Federal Reserve’s preferred personal consumption expenditure index, which wants to return the price increase to 2%. .
Another measure of inflation, the Consumer Price Index on which US pensions are tested, also accelerated last month, to 3.5% over one year. This situation prompted Federal Reserve Chairman Jerome Powell to change his tune, warning that it may take “longer than expected” to ensure that inflation slows down in a sustainable way. The institution responsible for monetary policy insists that they will not see prices rise again. But he must be careful, so that it is not too late, which could put a burden on the economy and cause the unemployment rate to rise.
Since July, the Federal Reserve’s key interest rate has remained in a range of 5.25% to 5.50%, its highest level in more than 20 years. This has the effect of keeping interest rates on mortgages, credit cards, car loans, etc. high, thus preventing prices from continuing to rise.
“Given the dynamics of the economy and prices, we do not see the Fed seriously considering easing its monetary policy before its meeting in September at the earliest,” says Ben Ayers, an economist at Nationwide Insurance. He even believes that “the potential increase in the economy would offset any reduction in interest rates until 2025, which is a big threat to growth next year.” However, the first quarter of 2024 saw what the Fed had been expecting since it started raising interest rates two years ago: a slowdown in economic growth after being much stronger than expected. in 2023.
US gross domestic product grew at an annual rate of 1.6% in the first three months of 2024, compared to 3.4% in the fourth quarter of 2023. But that may not be enough to convince the Fed, says Diane Swonk, senior economist at KPMG. KPMG.
“The slowdown in GDP growth may have been temporary and masked the underlying strength of demand,” Swank says. “The acceleration in spending in the services sector has fanned the flames of inflation.”
She also expressed “concern” that the Fed might not even be able to cut interest rates “at least” in 2024.
“There is still time before September, but it seems difficult to justify two rate cuts (in 2024),” she said, and some central bank officials “seem to be in a position to raise rates again on the table.”
(AFP)