The European Central Bank (ECB) passes the baton to the Federal Reserve, which will capture all the market’s attention next week. The members of the Federal Open Market Committee (FOMC) meet again this Tuesday after the eight-week hiatus declared between meetings to decide on their next move in monetary policy. A meeting where inflation will be at the center of the debate. Jerome Powell’s number one priority is price stability and this was evident during his speech at the Jackson Hole symposium, where he asserted that he is prepared to continue raising interest rates even further if necessary.
With this statement, the North American central bank wanted to convey the message that it has not yet concluded the fastest rise in the price of money in history or, in other words, that the cycle of increases cannot yet be considered dead. With the reference rate in a range between 5.25-5.5%, highs in 2001, the market points to a pause in Wednesday’s meeting, saving the last increase for October or December. Specifically, according to ‘Bloomberg’, analysts believe that this scenario is the most likely and it will not be until spring when the Fed can begin to contemplate the landing process.
It would not be the first time that the central bank has stopped along the way to take perspective of the impact of the increases carried out. It already did so in June after ten consecutive increases and did not hesitate to resume the upward path last July, without moving away from the objective, which is to keep the CPI at around 2%. However, inflationary pressures, far from subsiding, have turned upwards again this summer. The Consumer Price Index (CPI) for August has risen five tenths in the interannual rate during August, up to 3.7%, in its second consecutive rise after twelve months of decline.
The latest minutes of the Washington-based organization already reflected concern about prices breaking their downward path, as reflected by the Producer Price Index (PPI). This indicator – the one most followed by the Fed when making a decision on rates – has closed the eighth month of the year with an increase of 0.7%, compared to the rebound of 0.4% the previous month and above forecasts. These data are known in the heat of an activity that is growing below expectations – the GDP experienced a quarter-on-quarter increase of 0.5% between April and June – but it is not cooling at the rate expected by the Federal Reserve according to the level they have reached. The types.
Within the battery of macroeconomic data there is also the labor market, which continues to show signs of resistance. In this sense, although the unemployment rate rose three tenths in August, to 3.8%, the key is in the weekly requests for unemployment benefits. Specifically, this rate has experienced a slight rebound to 220,000 compared to 216,000 the previous week, but they are still below what the market expected, its lowest mark since the end of July, which indicates that the tensions in this The scope continues and puts pressure on prices.
What all analysts agree on is that the cycle of increases is coming to an end. In the specific case of the US, the last two times that rates were above 5% a bubble burst. First the ‘dot.com’ and then the real estate, with a consequent contraction of activity. Fifteen years after the bankruptcy of Lehman Brothers, the consequences of which are known to everyone, the question is whether Powell will overdo it or achieve a soft landing for the economy. For now, the most heralded recession in history appears not to occur, at least in 2023.
The projections of the Federal Reserve economists rule out this happening during the current year, although they predict that economic growth in the next two years “will remain below their estimate of potential production growth,” which in sum can be translated in a small increase in unemployment. This occurs at the same time that most economists delay entering an economic recession or directly rule it out. The latest survey of purchasing managers prepared by Bank of America reflects this perception, with only 21% betting on a reduction in serious activity.
