Photo: explosiveoptions.net
By Isaac Cohen*
One of the most announced interest rate hikes was approved last week by the Open Market Committee of the US central bank. The widely expected increase in the federal funds rate of 0.25 percent also signaled a turn toward tightening the monetary policy posture. This means at least seven additional interest rate increases throughout this year and four more next year, together with reducing the size of the central bank’s balance sheet, perhaps starting as soon as the next meeting of May 3-4.
As described by Federal Reserve Chairman Jerome Powell, in his introductory statement at the press conference after last week’s meeting, the decision was based on the fact that the US economy is “very strong… against the backdrop of an extremely tight labor market and high inflation.” https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20220316.pdf
The decision also recognized several recently changed circumstances that are contributing to increased uncertainty. To the inflationary pressures generated by the recovery from the pandemic, the conflict in Eastern Europe has led to oil and other commodity price increases, while pandemic closures of major cities and ports in China, may again disrupt supply chains.
The markets reacted positively, with the Dow Jones Industrial Average increasing 1.5 percent, but there were also disapprovals, by those who judge the measures as “too little or too late.” Among them, Harvard Professor Lawrence Summers, who was Treasury Secretary under President Bill Clinton and advisor to President Barack Obama. in two op-eds in the Washington Post (03/16-18/22), said to reduce inflation it is necessary “to raise interest rates by more than the inflation being counteracted.” Also, an editorial in The Wall Street Journal (03/17/22) said the problem was the Federal Reserve has “let inflation run free.”
*International analyst and consultant, former Director ECLAC Washington. Commentator on economic and financial issues for CNN en Español TV and radio, UNIVISION, TELEMUNDO and other media.
