After a year of falling month after month, the American inflation accumulates two months of increases, a situation that It goes against the objectives set by the Federal Reserve (Fed) of controlling prices by raising interest rates.
Following the release of the latest employment data last week, which confirmed a slowdown in job creation, many experts said that On the 20th the Fed will announce a pause in the increases.
But this Wednesday the United States Bureau of Labor Statistics (BLS) confirmed that Inflation rose five tenths in August and stood at 3.7%. after also increasing two tenths in July. In monthly terms, consumer prices rose six tenths.
Will this situation affect the decision of the members of the Federal Open Market Committee of the Fed (FOMC, for its acronym in English), in charge of debating rate increases? Experts do not believe it, although this small bullish streak, especially if it continues, could lead to more rate increases between now and the end of the year.
“Next week the Federal Reserve will surely keep rates stable to see how inflation and employment data continue to evolve over the coming months,” University of California Economics professor Eric Swanson tells Efe.
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In his opinion, the eleven rate hikes carried out since March 2022 (to the current range of 5.25% and 5.5%, its highest level since 2001) have achieved the desired effect: “Inflation and job growth have been trending downward, indicating that the Fed’s increases have been having an effect,” he says.
According to the FedWatch tool of the analyst company CME Group, 97% of analysts believe that the Fed will maintain rates this month. 39.4% estimate that there will be a new rise next November, when FOMC members meet again for the penultimate time of the year.
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If rates continue to rise, the labor market will begin to suffer
In the opinion of Cornell University professor Harry Kaiser, although inflation “will be relatively stagnant in the coming months, neither rising nor falling much,” the Fed should not “raise rates again.” “I haven’t been in favor of the last increase, I don’t think it was necessary,” he says.
So far, he points out, the labor market has not suffered catastrophically from rate increases. Although job creation in recent months has slowed down and only 187,000 net jobs were created in August (a figure below the average for the last twelve months, 271,000), the unemployment rate remains low, at 3.8%. .
But, if rates continue to be raised, the labor market “will begin to suffer,” says Kaiser.
“Unemployment is worse than inflation. That is why I have not been a supporter of the last rise, I don’t think it was justified given that inflation had dropped substantially last year. “I also do not support another increase because it could harm the growth of the economy,” he maintains.
StreetFX analyst Yohay Elam points out that “the chances of an additional hike by the Federal Reserve remain low, but the markets will remain nervous” these days until the Fed makes its announcement.
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“Markets expect Federal Reserve Chairman Jerome Powell and his colleagues to leave borrowing costs unchanged next week, but there is no consensus on an increase in November,” he notes.
Laurence J. Kotlikoff, professor of economics at Boston University, is also of the opinion that the Fed should not continue raising rates. “I think that if they are intelligent, they will not do anything,” the economist told Efe, who believes that it would be convenient to explore other tools to lower rates.
Among them is one that is not very popular among economists today, price controls, establishing a maximum price for products to stop inflation.
This measure was established in the United States after the Second World War (1939-1945), a time that, as the White House concluded in a report published in 2021, “has strong similarities” in economic terms with what happened after the pandemic.
“The Fed chair, the treasury secretary (Janet Yellen) or the president (Joe Biden) should start talking to the 35 million businesses in the country and those who set prices and say ‘look, our goal is to this year everyone sets price increases of 3%, for example,” he says.
“That is the type of conversation that should take place, coordination with companies, and that is what I don’t see, among other things because President Powell is a lawyer, not an economist,” he says.
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European Central Bank decides to increase interest rates
And while the US awaits the Fed’s decision, In Europe, the European Central Bank raised its key rate this Thursday to a historical maximum of 4% to anchor inflation in the euro zone, despite the pressure to take a pause to give the economy a break in the face of worsening forecasts.
This is the tenth consecutive increase since the European issuer (ECB) adopted the most restrictive monetary policy in July 2022. of its history due to an increase in prices due to the effects of the Russian invasion against Ukraine and its impact on the cost of energy.
“Inflation continues to slow, but is expected to remain at too high a level for too long a period,” the issuer of the 20 countries that use the euro reported in a statement.
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The ECB governors decided to raise rates again, with an increase of 0.25 points in the deposit rate, set at 4%. This index is key for banking operations in the euro zone and It now stands at its highest level since the introduction of this currency in 1999.
This increase in the guideline rate occurs in a context of indications that there is a deterioration in activity in the euro countries.
The ECB cut its forecasts for the growth of the economies of the euro countries, with GDP expected to expand by 0.7% in 2023, 1% in 2024 and 1.5% in 2025.
INTERNATIONAL EDITORIAL
*With EFE and AFP
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