Knowing the inflation rate and market expectations for May, they realized what they were, and this Wednesday the Federal Reserve strengthened the fight against current price increases and the main It rose 0.75 points to the benchmark interest rate.
At the end of a two-day meeting of the US monetary policy-making committee, federal officials announced that interest rates for financial institutions to inject liquidity into the economy are currently in the range of 1.5% to 1.75%. This is a 0.75 percentage point increase, the largest increase recorded by the Fed since 1994.
Until a few days ago, it was expected that rate hikes would be repeated by 0.50 points in May. This is the most likely scenario for this Wednesday’s meeting, but last Friday, US inflation rose to 8.6% in May, and indicators related to future inflation expectations continue to rise. As such, the scenarios that have come to be considered more credible are, in fact, the Fed’s most aggressive, rising 0.75 points. What is currently confirmed.
In a statement announcing the decision, the entity led by Jerome Powell said: “Inflation remains high, reflecting the supply-demand imbalance associated with pandemics, rising energy prices, and more general price pressures.”
The Fed’s double determination to combat inflation is evident in the fact that members expect interest rates to reach 3.8% at the end of this year, when March’s forecast was only 1.9%. Reached.
Contrary to what Jerome Powell has defended, the Fed is now more confident in its ability to avoid a recession and a significant rise in unemployment in a rising interest rate scenario. It has become. small.
The manager has not yet predicted a recession, but the growth forecasts for 2023 and 2024 have been revised downwards, and we also expect the unemployment rate to begin to rise, which has remained at very low levels.
Expectations for accelerated interest rate hikes in the US (and Europe), as currently confirmed, are driving the global stock market in recent weeks, especially in the first few days of this week. Due to a significant drop of more than 20% on Wall Street since the beginning of the year. The concern for the market is, to be precise, that very restrictive monetary policy will drive the economy into recession.