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Inflation in the US: the Federal Reserve raised the reference rate to the highest level since 2007

Archive photo of the Federal Reserve building in Washington DC (REUTERS/Joshua Roberts)
Archive photo of the Federal Reserve building in Washington DC (REUTERS/Joshua Roberts)

The Federal Reserve (Fed, US central bank) this Wednesday increased its reference rate by half a percentage point as expected by the market, but he reaffirmed that he will continue raising interest rates and will take them above 5%.

At the end of a two-day meeting of its Monetary Committee, the US central bank, which brought their rates to 4.25-4.50% by unanimous decisionincreased its inflation forecast for 2023 to 3.1% against 2.8% of its previous projection.

Also lowered its GDP growth forecast for the largest world power next year, 0.5% compared to 1.2%, according to the statement issued at the end of the meeting.

The rate increases aim to make credit for consumption and investment more expensive, thus cooling the economy and reduce pressure on prices, in a context of persistent inflation in the United States.

These are the highest reference rates since 2007.

New increases “will be appropriate,” the agency said in its statement.

While in September they forecast a level of 4.6% for the reference rate at the end of the upward cycle, now they are managing levels above 5%.

File photo: People shop at a supermarket as inflation hits consumer prices in Manhattan, New York (REUTERS/Andrew Kelly)
File photo: People shop at a supermarket as inflation hits consumer prices in Manhattan, New York (REUTERS/Andrew Kelly)

This moderation in interest rate increases marks the beginning of a new stage in the fight against the scourge of inflationa Fed priority that aims to bring it to a level of 2% per year, considered healthy for the economy.

This is the seventh consecutive rate hike since March, although it is more attenuated than the last four, which were 0.75 points.

The agency had been raising its rates by 0.75 percentage points in the last four monetary policy meetingsan increase of a magnitude unprecedented since 1994.

Despite this moderation, the central bank is less optimistic than in September about the path of inflation.

Even, for 2022, it expects a closing at 5.6% compared to 5.4% three months ago.

The Fed does not mention the possibility of a recession next yeardespite market fears in a context of a sharp rise in rates that could slow down economic activity too much.

The central bank expects an unemployment rate of 4.6% in 2023 and 2024 compared to 3.7% currently.

12-month inflation marked 7.1% in November, well below the 7.7% in October, according to the consumer price index (CPI) published last Tuesday before the start of the meeting of the fed.

The effects of the rate policy take months to be seen. Consumption remains sustained and the labor market is in very good health in the United States.

By Julie Chabanas (AFP)

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