The Fed echoes a possible recession throughout this year, with a recovery during 2024 and 2025
MADRID, 12 Abr. (EUROPA PRESS) –
The United States Federal Reserve (Fed) has tempered its forecasts for additional rate hikes for this year after the financial instability unleashed by the collapse of Silicon Valley Bank (SVB) and Signature Bank, according to the minutes of its last monetary policy meeting, held on March 21 and 22.
“The probable repercussions that the latest events in the banking sector will have on economic activity and inflation have led many of the participants to lower their expectations on the target range of rates that would be sufficiently restrictive,” the Fed explained.
However, the Federal Open Market Committee (FOMC, for its acronym in English) has also agreed that inflation continues at “elevated” levels and that “the latest data show little sign that it is moderating at a rate fast enough to return, in due course, to the 2% target.”
In this regard, the last reading in February of the United States personal consumption expenditure price index, the statistic chosen by the Fed to monitor inflation, stood at 5% year-on-year. The Federal Reserve expects for this year that it will be at 2.8%, and the underlying index at 3.5%.
Likewise, the participants have expressed their concern about a sudden cut in the flow of credit to households and companies that would slow down the economy even more as a result of the turbulence unleashed by the SVB. However, members agreed that the extent of these effects are “uncertain”.
“Some participants have emphasized the need to be flexible and open when it comes to discerning what monetary policy is appropriate in the face of uncertain economic prospects,” they stated in reference to interest rates.
Despite this, the committee has agreed that “additional action may be necessary to achieve a sufficiently restrictive monetary policy to bring inflation down to 2%.”
Finally, the Fed has included among its forecasts the possibility of a recession throughout this year, with a recovery during 2024 and 2025. Economic growth in 2024, however, would be below the potential rate of GDP, while the following year would already be above.
On March 22, the Fed already decided to approve an interest rate rise of 25 basis points, until placing them in a target range of between 4.75% and 5%.
The US monetary authority then predicted that more interest rate hikes would still be necessary to subdue the rise in prices and return inflation to around 2%. In addition, the Fed stated that the “banking system of the United States is robust and resilient.”
