(Tiper Stock Exchange) – The Fed takes time, but it does not ease its fight against inflationdespite the expectations for a stop in the monetary policy normalization cycle motivated by the fears of economic slowdown and from financial crisis broke out with SVB and Signaturee Bank, which risks rationing credit to households and businesses and further slowing down the American locomotive.
The FOMC yesterday announced another hike of 25 basis points of the cost of money, bringing the reference interest rates into a fluctuation band of 4.75-5%, the highest since 2007. A level that won’t even be the highest, because the The Fed is already planning further increases in the cost of money.
THE American markets last night they welcomed the indications from the FOMC and Powell’s press conference with a certain discontent, with the three indexes – Dow Jones, S&P 500 and Nasdaq 100 – they yielded about l‘1.6%. It was above all the ones that weighed Powell’s words which showed a slightly more conservative Fed, but determined to fight its archenemy: inflation.
Markets initially welcomed the quarter-point rate hike and the statement that the Fed has been on the verge of suspending future hikes in interest rates due to the turmoil in the banking sector. Then, Wall Street veered lower again, grudgingly welcoming the statement that the Fed’s hands are not tied and will continue to hike rates if necessary. President Powell has reaffirmed the validity of his crusade against inflation, even in spite of the double damage that the banking sector turmoil will do to the economy.
Investors still fear the repercussions of a restrictive policy on economic growth and in particular a fall into recession, which would be even more probable in the case of financial crisis worsened, causing a credit crunch with “significant” implications on the economythrough the slowdown in investment and private spending.
Fed economists actually have too revised growth estimates downwards of GDP for 2023 and 2024, indicating them at +0.4% and +1.2% respectively. The unemployment rate is expected at 4.5%.
At this point the focus shifts to the data, especially those of the labor market, which will give an important signal on how the stars and stripes economy will move.
(Photo: Salvatore Cavalli)