The United States Federal Reserve (Fed) is about to raise its benchmark rates to fight price escalation, and in its meeting on Tuesday and Wednesday it will decide the magnitude and speed of this increase.
The Fed has in the rates a tool to curb demand and moderate inflation, since its reference determines the commercial banks to set their own interest rates. If credit is more expensive, individuals consume less and companies invest less.
Expected "a signal" about him "when the first rate hike will take place, a priori at the March meeting" of its monetary committee, estimates economist Joel Naroff.
If that’s the intention, it would be nice if the team that suddenly discovered inflation says so clearly.", ironized.
Last year’s spike in prices surprised economists, and Fed officials have recently had a turn on this issue and are concerned about inflation that until now they insisted on describing as "temporary".
In December, the US central bank increased the speed of cutting its asset purchases with the aim of abandoning this tool in March, three months earlier than initially planned.
Those liquidity injections, which reached 120,000 million dollars per month, allowed sustaining the economy during the crisis, and it is considered that bringing them to zero is a precondition for raising rates.
Rise in March or January?
"I think (the Fed officials) will clearly signal that the tapering (of asset purchases) will be over in time for them to raise rates at the March meeting"David Wessel, an economist at the Brookings Institution, told AFP.
The guideline or reference rates were brought to zero in March 2020, when the covid pandemic broke out, as a way to stimulate consumption, the engine of the economy. But demand has become too strong that supply is unable to respond due to problems in global supply chains.
As a result, prices rise, and inflation reached 7% in 2021, a maximum in almost 40 years in the United States.
The vast majority (94.4%) of market agents expect the Fed to maintain its rates at this week’s meeting at the current level of 0% to 0.25%, according to CME Group.
Some operators are betting on a rise of a quarter of a percentage point already in this meeting.
speculations
"Debate over the Fed’s very short-term outlook heats up again"said Krishna Guha, an economist at Evercore, an investment advisory firm.
Among the various speculations, "a sudden halt (of asset purchases) and even a rate hike" already this week.
Other speculation: "A disproportionate rise of 50 basis points" of the reference rate "at the March meeting", stands out.
"I don’t see a 50 basis point hike in March. We do not prepare the markets for something so spectacular", recently clarified one of the Fed governors, Christopher Waller, who evoked an increase of 25 percentage points for that month.
The fight against inflation will require an effort "long-winded", President Joe Biden warned Wednesday, considering "appropriate" that the fed "recalibrate (your) support" to the economy.
The Fed was reluctant to raise interest rates too soon so as not to affect employment. But according to Joel Naroff, the United States "is already fully employed".
The unemployment rate fell in December to 3.9% and is close to the 3.5% prior to the pandemic. GDP growth in 2021 will be announced a day after the Fed meeting, on Thursday, and an expansion of 5-6% is expected.
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