The Federal Reserve of the United States (FED) will start a new monetary meeting on Tuesday that will last until Wednesday, and where a new rise in its reference interest rates of at least 75 basis points is expected.
Faced with inflation that reached a 40-year record of 9.1% in June, the FED successively ordered new hikes in interest rates in order to stop the escalation in prices.
The first rise in rates, of 25 percentage points, was in March and it represented the first upward modification since 2018, after reaching minimum levels close to 0% to sustain the economy during the Coronavirus pandemic.
After which, in May and June, the FED ordered new increases of 50 and 75 points, respectively, leaving the interest rate in a range of 1.5% to 1.75%.
Rate hikes, by promoting savings and making credit more expensive, seek to reduce the amount of money in circulation, and it is a tactic that is usually used in scenarios of high inflation and an overheated economy, as is the case in the United States, where supply – due to various circumstances, including difficulties in supply chains – cannot sustain demand.
Rate hikes, by promoting savings and making credit more expensive, seek to reduce the amount of money in circulation, and it is a tactic that is usually used in scenarios of high inflation and an overheated economy.
Although the majority of market operators opt for a new adjustment of 75 basis points -replicating the rise in June, which was the highest since 1994-, the big investment banks estimate that the Fed could go further with a 100-point hike to give a strong signal that it seeks to control the rise in prices.
The president of the FED, Jerome Powell, did not rule out such a rise in his last hearing on Capitol Hill and stressed that the authorities will take the necessary measures to “restore price stability.”
However, the aggressive policy of the monetary entity could have the cost of the country entering a recession and there are already indicators of economic activity that suggest that the country entered this situation in the second quarter, after registering a drop in its Gross Product Domestic (GDP) in the first period of the year.
Specialists from Morgan Stanley and Goldman Sachs estimated that due to the persistence of inflation, it is possible that the FED will continue with its policy of raising rates despite the downturn in the economy.
JP Morgan CEO Jamie Dimon warnedin statements released by the Bloomberg agency that the risks of the United States entering a recession are “closer than they were before”.
“The fate of the economy will largely depend on how quickly the Fed raises interest rates,” Dimon added.
