The American “Wall Street Journal” reported that Federal Reserve officials (the US central bank) have become less confident about the need to continue raising interest rates, due to the repercussions resulting from the failure of three banks since last March, which could lead to a credit crisis. As banks face higher financing costs.
Yesterday, the Federal Reserve agreed to keep the main interest rate unchanged for the first time since March last year, after 10 consecutive increases.
The US Central Bank stated, in a statement, that the decision to maintain the benchmark interest rate on federal funds in a range between 5 percent and 5.25 percent, the highest level in 16 years, may be short-lived.
And the “Wall Street Journal” pointed out that after maintaining interest rates on federal funds near zero in the wake of the “Covid-19” pandemic, the Federal Reserve raised the rate at every meeting since March 2022 by a cumulative rate of 5 percentage points, which is the fastest series of increases. Since the eighties.
Officials have slowed their increases this year, raising the rate by a quarter of a percentage point in their past three meetings, most recently in May.
For his part, Jerome Powell, Chairman of the US Federal Reserve, said in a press conference that the central bank has kept interest rates steady, in light of the extent to which we have tightened (financial) policy, and the potential headwinds from tightening credit.
Jerome Powell began his remarks at yesterday’s press conference, which followed the decision by confirming that almost all policy makers believe that some additional interest rate increases this year would be appropriate… indicating that today’s decision confirms that the Federal Reserve is following a moderate pace of raising interest rates in the year. Ongoing after violent increases in 2022.
“If the economy develops as expected, the target average Fed interest rate will be 5.6% at the end of this year,” he said.
Last month, Powell and some of his colleagues hinted at a possible compromise, in which officials forgo a rate hike in June, while leaving the door open to the possibility of a rate hike at their July 25-26 meeting.
Officials raised their forecasts for economic growth and inflation, and lowered their estimates of how high the unemployment rate would be this year.
However, the Federal Reserve Chairman warned that the economy is facing pressure due to tightening credit conditions, which may put pressure on economic activity, employment and inflation in the future, noting that inflation still has a long way to go before it reaches the 2% target.
“We have seen some relaxation in labor market conditions, and the conditions that we need to see to bring inflation down to 2% are starting to emerge, including lower growth and stagnant employment,” he added.
The American newspaper reported that Powell has kept the monetary policy committee within the US Federal Council unified since inflation rose two years ago, with only one opposition, from the head of a reserve bank who retired earlier this year.
The Fed fights inflation by slowing the economy by raising interest rates, which leads to tightening financial conditions such as higher borrowing costs, lower stock prices, and a stronger dollar. Banking pressures are expected to further tighten financial conditions, but the magnitude of any credit crunch is difficult to predict and may not be apparent for several months.
The “Wall Street Journal” concluded that the interest rate decision indicates that while Fed officials remain concerned about rising inflation, they are changing their methods to better manage the risks of raising interest rates too much or too quickly.
