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The Federal Reserve still has a long way to go to cool the economy and control inflation; However, its strategy to do so could have a significant change as of this month, advanced its Chairman, Jerome Powell.
According to Powell, the Fed will continue to use its benchmark rate as the most effective tool to return inflation to target Of 2%; however, starting this month, adjustments could be less aggressive .
“The time to moderate the pace of rate increases
may come as soon as the December meeting,” Powell said at a forum held at the Hutchins Center for Fiscal and Monetary Policy on Wednesday.
An announcement widely awaited by the markets that have been especially sensitive to the policy decisions that the Fed has taken since it began its race to bring down historical inflation.
Over the last nine months, the Fed has announced six upward adjustments to its reference rate, of which the last four have been historic 0.54%, some not seen in the recent history of central banks .
But the Fed is determined to cool ar the economy and its best tool to do so is by making credit more expensive, although in this way it could lead the United States to a recession, as critics of the central bank have warned for several months.
But Powell has recognized that the effects of the historical increases in the interest rate have not given the noticeable results that were expected, although inflation has decelerated from the peak of the 9.1% that reached last June to 7.7% in October, both in their annual measurements.
“Despite some promising developments, we have a long way to go (…) The Fed has not seen clear progress”, Powell pointed out in his speech before the central bank meets on 14 and 02 of December for your latest policy announcement of 1445805674.
A change of strategy
Despite the fact that that Powell’s announcement could even lead to a pause that releases the “brakes” that the economy has As a measure to control inflation, the Fed could start a new phase of its strategy in the midst of a complex scenario.
One of the indicators that generally suffers when interest rate rises are applied is labor, with layoffs which are the result of higher expenses and costs for companies.
However, in the current scenario, high inflation, rate increases and the solid and effervescent labor market have coexisted for months.
Maintaining a healthy labor market is good for workers, but it can be paradoxically negative for the inflationary control objectives that the Fed seeks.
As long as the workers have salary If the prices are solid and companies continue to add employees in a tight market, inflation can be fed by the possibility that workers have to continue spending and paying the prices that companies set.
In the midst of this scenario, the Fed is preparing for an adjustment with increases that they could be less aggressive of the reference rates and with the hope that the economy of the country can rid the fears of a recession.
“ I still believe that there is a path to a soft landing ,” Powell said prior to the new stage of the strategy to control inflation.
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