The Federal Reserve is facing its toughest decision in recent years, writes The Wall Street Journal ahead of the decision. In one of the scales lies another interest rate increase and trying to continue to reduce inflationary pressure in the US, which has certainly lost momentum (6.0 percent in February) but is still above the central bank’s target. In the second, consider the last week’s global banking crisis and the impact another interest rate hike could have on financial stability. – It will be a very tough decision with a very complicated communication situation, says William English, former Fed economist and now professor at Yale to the WSJ about how Powell should behave in connection with the interest rate announcement. 80 percent chance The day before the interest rate announcement, the market had priced in that there is an 80 percent chance that there will be an interest rate increase, which in that case would bring the policy rate up to 4.75–5.00 percent. Those who advocate an interest rate break after the Federal Reserve carried out a total of seven hikes in 2022 highlight that it could add further uncertainty and challenges after first the US niche bank Silicon Valley Bank collapsed, then the wave of concern surrounding the crisis bank Credit Suisse which has now ended with a takeover by the competitor UBS. – I would not pour gasoline on the fire and raise the key interest rate at the same time as there is a tightening of the financial system as an effect of this shock, says Eric Rosengren, former head of the Fed in Boston to the newspaper. A credibility problem Others believe that if the Fed now chooses to bow to the pressure and chooses to take a temporary break in terms of interest rate increases, this in turn could have clear consequences. – Powell has fought so hard to gain credibility as an inflation fighter. Doing nothing now would seem completely wrong given the data we have received regarding inflation, says Ellen Meade, an economist at Duke University, to The Wall Street Journal. Savings economist Frida Bratt gives her analysis in the clip above
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Toughest decision in a long time for the Federal Reserve – raises interest rates by 25 basis points
