The United States Federal Reserve (FED) decided this Wednesday raise benchmark interest rates by a quarter pointby placing them in a range of between 0.25-0.50%, and announced that in the coming months it will decide on additional hikes in search of address the highest inflationary escalation in the last four decades for that country.
In a statement released this afternoon in Washington after a two-day meeting of its monetary policy committee, the FED announced that in the coming months there will be additional rate hikeswhile lowering the growth forecast for 2022 by 2.8%, against the initial 4%, according to reports from the Bloomberg and AFP agencies.
The Federal Reserve justified the decision by noting that “economic activity and employment indicators have continued to strengthen. Job creation has been strong in recent months and the unemployment rate has declined substantially. Inflation remains highreflecting pandemic-related supply and demand imbalances, higher energy prices, and broader pricing pressures.”
The US monetary agency said that “Russia’s invasion of Ukraine is causing enormous human and economic hardship.”
“The implications for the US economy are highly uncertain, but the invasion and related events are likely to create additional upward pressure on inflation and weigh on economic activity in the near term,” the Fed added.
In relation to employment, the FOMC remarked that “the aim is to achieve maximum employment and inflation at a rate of 2 percent in the long term. With the appropriate reaffirmation of the monetary policy stance, the FOMC expects inflation to return to their 2 percent target and the labor market stays strong.
Based on these objectives, the FOMC decided to “raise the target range for the fed funds rate from 0.25% to 0.50%while anticipating continuous increases.
The Committee also said it “expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at an upcoming meeting.”
In any case, the FOMC clarified that “it is prepared to adjust the monetary policy stance as appropriate if risks arise that could impede the achievement of the objectives. The Committee’s assessments will take into account a wide range of information, including readings on health public policy, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
The vote was not unanimous and was 8 to 1.with the only dissent from the president of the Federal Reserve of St. Louis, James Bullard, who spoke for a greater adjustment of the target range for the federal funds rate of 50 basis points, in order to leave the rate within a range between 0.5% and 0.75%.
In addition to the rate adjustment decision, FED directors modified their growth and inflation assumptions for the economy in the next three years.
For 2022, the GDP projection was adjusted from 4% to 2.8%, unemployment remained at 3.5% and inflation was raised from 2.6% to 4.3%.
For next year, the GDP hypothesis remained at 2.2% while for 2024 it was lowered to 2%.
In the case of 2023 inflation rose from 2.3% to 2.7% and to 2024 rose from 2.1% to 2.3%.
As for the unemployment for 2023, the projections remained at 3.5% while for 2024, it rose from 3.5% to 3.6%.
Regarding these hypotheses, the FED clarified that “a considerable uncertainty accompanies these projections. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future path of the economy can be affected by a host of unforeseen developments and events. Thus, in setting the monetary policy stance, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurrence.”
