Fed plans to slow rate hikes in December

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Washington (EFE).- The Chairman of the US Federal Reserve, Jerome Powell, dared on Wednesday that the central bank’s rate hikes will slow “from December”, thus implying that the next hike will be 0.5 points in instead of 0.75 like those approved in recent months.

“It makes sense to moderate the pace of our rate hikes as we approach the level of tightening needed to rein in inflation. This moment (…) could come as early as the December meeting,” he explained.

At an event at the Brookings Institution in Washington, however, Powell stressed that inflation remains too high to stop rising rates, and that the official interest rate will need to stay high for longer than expected.

“It seems likely to me that the final level of rates should be a little higher than what was included in our summary of the economic forecast for September,” he explained.

Fed Predictions

In its September forecast, the Fed expected to keep the official interest rate between 3.9 and 4.6% by the end of 2022 – it is currently between 3.75 and 4% -, and between 3.9 and 4.9 in 2023, leading to a rate between 2.3 and 3% in the long term.

In his speech, Powell wanted to downplay the most recent economic data, which seems to indicate that inflation in the country has peaked, and warned that models have been predicting for a year that inflation will decline when in fact it continued to increase. .

The Fed boss has focused his intervention on the labor market, which he says continues to lag as there is more job supply than demand.

secure employment

Powell defended the Fed’s policy of focusing on raising interest rates in an attempt to slow the economy to ensure maximum employment, because “without stable prices, there can be no jobs. maximum”.

In this sense, the president of the central bank felt that the policy of raising interest rates does not play a very pronounced role in relation to his other main objective, which is to maximize the strength of the labor market, as some criticize him.

Powell repeated his comments from early November, when the central bank announced its fourth consecutive 0.75 point interest rate hike, saying there was still room to bring inflation back to its 2% target without triggering of recession. In October, the rate stood at 7.7% over one year.

The Fed Chairman felt that this margin is narrowing, but that it continues to exist and that recent employment data showing a drop in demand for workers is encouraging.

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