By Isaac Cohen*
The central bank of the United States decided, last week, to increase the federal funds interest rate by a quarter percentage point, to between 1.75 and 2.0 percent. This is the second increase of this year, with two more expected by year’s end, one more than those predicted in March. With unemployment down to 3.8 percent, a rate not seen since 2000, and inflation close to the 2 percent target, the Federal Reserve is close to achieving its dual mandate of the maximum employment with price stability.
The projections released also last week are that inflation will remain close to target and unemployment will decrease to 3.5 percent by the end of the year, the lowest rate in 50 years. In these conditions, the projection is that there will be at least three more interest rate hikes next year. Additionally, the statement issued at the end of the Open Market Committee meeting omitted a phrase included in previous statements, saying interest rates were “likely to remain, for some time, below levels that are expected to prevail in the longer run.” www.federalreserve.gov/monetarypolicy/files/monetary20180613a1.pdf
How to respond to the question if the monetary policy posture is accommodative or restrictive? Perhaps the answer is neither. As described by President Raphael Bostic of the Federal Reserve Bank of Atlanta, “we want to ensure that the economy is not overheating, but we also do not want monetary policy to become too restrictive and threaten to choke off the expansion,” www.frbatlanta.org/-/media/documents/news/speeches/2018/06/2018-06-18-bostic-path-to-economic-resilience.pdf
*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.
