The Federal Open Market Committee (FOMC) of the United States Federal Reserve (Fed) has decided to maintain interest rates in the target range of between 5.25% and 5.5%, as reported this Wednesday.
In this way, the US central bank has once again interrupted the path of tightening its monetary policy after the 25 basis point increase in July. Thus, there are a total of eleven increases since the sequence began in March 2022, which has placed the price of money at its highest level since January 2001.
“The Committee will continue to evaluate additional information and its implications for monetary policy,” the central bank has indicated.
To determine the degree of potential tightening that may be appropriate to return inflation to 2%, the Fed “will take into account the cumulative tightening of monetary policy, the lag with which monetary policy affects economic activity and inflation, and the development of economic and financial events”.
In assessing the appropriate stance of monetary policy, the Committee has assured that it will continue to monitor the implications of incoming information for the economic outlook.
Likewise, the Fed has also published the update of its macroeconomic forecasts, as well as its members’ estimates on the evolution of interest rates.
The ‘dot-plot’, or dot plot, has undergone some modifications compared to June. In the sixth month of 2023, FOMC members expected rates to be between 5.25% and 6% at the end of 2023. Now, however, they expect them to do so in the range of 5.5% and 5.75%.
Looking ahead to 2024, there is a clear dispersion among those who expect the price of money to be between 4.5% and 5.5%, although some members are betting on even higher figures.
The central projection of the issuing institute indicates that interest rates will be between 5.4% and 5.6% in 2023, equivalent to the June projection. For 2024, the forecast is for the range to be between 4.6% and 5.4%, compared to the previous forecast of between 4.4% and 5.1%.
Regarding macroeconomic developments, the Fed has improved its outlook. Thus, it has revised upwards, to 2.1%, the country’s GDP growth in 2023, compared to the 1% estimated in June. Furthermore, the growth forecast for 2024 has been increased by four tenths, to 1.5%, although that for 2025 remains unchanged at 1.8%.
Regarding unemployment, the Fed estimates that the country will close the year with an unemployment rate of 3.8%, three tenths less than estimated three months ago. In both 2024 and 2025, unemployment will be 4.1%, four tenths less in both cases compared to previous forecasts.
For its part, inflation will be 3.3% at the end of the year, one tenth less, while the underlying variable, which excludes energy and food prices from its calculation due to their greater volatility, will remain at 3.7%, two tenths less. By 2024, the general and underlying index will be 2.5% and 2.6%, respectively.
GDP, PARO AND INFLATION
The economy of the world’s leading power experienced annualized growth of 2.1% of its GDP in the second quarter of 2023 compared to 2% in the previous section, according to the Bureau of Economic Analysis (BEA).
As for the US labor market, it created 187,000 non-agricultural jobs during the month of August, and, in addition, unemployment rose three tenths, to 3.8%, according to the Bureau of Labor Statistics of the Department of Labor.
Thus, the unemployment rate in the US moved away from the minimum recorded in January and April, when it reached 3.4%, which was its lowest rate since 1969.
For its part, the personal consumption expenditure price index, the variable preferred by the Fed to monitor inflation, stood at 3.3% year-on-year in July, three tenths above the previous month. The monthly rate registered an expansion of 0.2%, unchanged since June. The underlying variable closed at 4.2%, one tenth more.
