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The Federal Reserve has finally recognized that inflation has begun to cool; however, in the voice of its president, Jerome Powell, to this point, the job is not complete and, therefore, the adjustments to the key interest rate will continue.
Economists’ forecasts and market hopes came true with the Fed’s announcement to increase its key interest rate by a quarter point this Wednesday, after its first two-day meeting of 2023.
Although the Fed added its eighth adjustment to the key rate since March 2022, when he began his crusade against inflation; the adjustment of this Wednesday returned to the increases that the central bank had accustomed.
For the first time since then, Powell acknowledged that inflation is subsiding and that the historic adjustments it carried out over the past year have finally had a positive consequence for its inflation targets.
“Now we can say, I think, for the first time, that the disinflationary process has begun. We can see that and we really see it in the prices of goods so far,” he noted.
Following the announcement, however, the Fed chair was quick to make clear that the decision of policymakers should not be taken as a step back in the battle to cool prices.
Powell made it clear during the press conference after the 0.25% rate hike announcement that the upward adjustments will continue for at least a couple more during the year and, he added, that reference rates will remain high this 2023.
“Given our outlook, I don’t see us cutting rates this year. If our outlook comes true,” said the Fed chairman.
He added that, although inflation has cooled, prices continue to be unacceptably high, for which reason the work of policymakers will not end until the indicator returns to its 2% target.
“We have to complete the job. That’s why we’re here,” the Fed chairman said during the post-announcement press conference.
Look at the labor market
Although the Fed’s announcement was in line with analysts’ expectations, the new rise in key rates to make the cost of money more expensive will continue to undermine the job marketwhich already shows signs of wear.
The wave of layoffs in the technology sector has begun to reach other sectors of the economy and workers they feel less and less confident about staying in their jobs in the short term.
The Fed is clear that inflation control will have costs for the labor market; however, its president considered that, given the current circumstances, it is still possible to achieve a “soft landing” that prevents the destruction of millions of jobs in the United States.
However, when asked if the worst about the effects of rate hikes as a measure to control inflation had passed, the president of the Fed He acknowledged that it is too early to tell..
However, he reiterated that, even with the current inflation data, it is “very premature to declare victory (over inflation) or think that we really have it”.
The Fed’s next meeting is scheduled for March 21-22, at which time policymakers will also provide an overview of the state of the economy.
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