On Wednesday, February 1, the US Federal Reserve System (FRS) raised key rate range by 25 basis points, up to 4.5% -4.75% per annum.
This is the eighth consecutive increase in the base rate, which is now at the highest level since 2007. However, such a “soft” increase in the indicator was the first since March 2022, when the Fed began to tighten monetary policy.
Dynamics of the FRS key rate. Data: macrotrends.
The Fed noted that the latest figures received by the regulator “indicate moderate growth in spending and production.” According to the agency, the number of jobs increased “significantly” in the United States with a low unemployment rate. At the same time, inflation has slightly decreased, but remains at a high level.
“The war of Russia against Ukraine leads to huge human and economic difficulties, contributes to increasing global uncertainty. Committee [Комитет по операциям на открытом рынке ФРС США, FOMC] pays great attention to inflationary risks,” the press release says.
January 12 BLS published data on inflation in the United States. The value of the consumer price index for December amounted to 6.5%. Core inflation fell to 5.7%.
The FOMC has set its inflation target at 2%, according to the statement. An increase in the interest rate in the long run should help achieve this goal.
To determine the next steps in monetary policy, the Committee will “monitor the impact of incoming information on economic prospects.” The regulator said that it is ready to adjust its position on this issue if there are risks that “may interfere with the achievement of goals” of the FOMC.
The cryptocurrency market reacted to the Fed’s decision with growth. At the time of writing, Bitcoin is trading near $23,850.
In an interview Bloomberg KPMG chief economist Diane Swank noted that the Fed is still ready to raise interest rates. According to her, the economy is in a situation where the market is likely to quickly respond to a decline in the indicator, so the regulator has a lot of room for maneuver.
Omar Sharif of Inflation Insights expressed the opposite opinion. He stressed that the decrease in the rate of increase is a positive signal, as it indicates the “dove” position of the Fed.
At a conference following the FOMC meeting, Fed Chairman Jerome Powell declaredthat the regulator considers further tightening of monetary policy “appropriate”. According to him, in 2022 the US economy “slowed down significantly”, however, in the first quarter of 2023, the agency sees signs of “modest” growth.
“Restoring price stability will likely require maintaining a restrictive stance for quite some time,” he added.
Powell called the latest financial data “encouraging” but stressed that the Fed needs “more evidence” to make sure inflation is coming down. He explained that the risk of “fixing” the high rate of price growth remains.
The baseline scenario for 2023 assumes continued but subdued economic growth, the official said.
“I still believe that there is a path for inflation to return to 2% without a significant economic downturn or a significant decline in employment,” he said.
In December 2022, the Fed raised the key rate range by 50 basis points to 4.25-4.5% per annum. Bitcoin quotes reacted by falling below $18,000.
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