The Federal Reserve economists have set a date for the recession that everyone has been waiting for in the United States for a year, but which never ends. Now, its economists expect it to occur in the last quarter of this year and the first of next, according to the minutes of the last Federal Reserve meeting published this Wednesday.
“The economic forecasts prepared by the experts for the May meeting of the FOMC [el comité de mercado abierto, que decide la política monetaria] They continued to assume that the effects of the expected further tightening of bank lending conditions, amid already tight financial conditions, would lead to a mild recession from the end of this year, followed by a recovery at moderate pace”, say the minutes, which go a little further: “A slowdown in real GDP was expected in the following two quarters, before registering a modest decline both in the fourth quarter of this year and in the first of the next” , they add.
At the March meeting, the Federal Reserve economists had already gone on record in the minutes that they expected a mild recession in the United States by the end of the year. Its president, Jerome Powell, pointed out that a mild recession should be understood as one “in which the increase in unemployment is less than what has been usual in recessions of the modern era.”
In any case, Powell made it clear that the forecast of the technicians does not have to be shared by the members of the monetary policy committee. The president of the central bank himself is still confident in the possibility of a soft landing, that is, controlling inflation without falling into recession.
What the minutes do not shed much light on is the next move in interest rates. The central bank met the expectations of analysts and investors at the last meeting. The Fed raised rates to 5%-5.25%, but no longer took new increases for granted, as it had done until then: “The committee will closely follow the information it receives and will evaluate its implications for monetary policy,” he said in the post-meeting statement.
Although everything seemed to point to a pause, Jerome Powell made it clear in the subsequent press conference that it was too soon to end the rate hikes and that decisions will be made “meeting by meeting”. “The decision on the pause has not been made today,” he said. “We are going to address that issue at the June meeting,” he insisted then.
That same message is conveyed by the minutes, in which a certain division is appreciated and it is reflected that “the advisability of increasing the target interval [de los tipos] after this meeting it is now less secure”. The Hawks: “Some participants commented that, based on their expectations that progress in returning inflation to 2% could remain unacceptably slow, more firm monetary policy would probably be warranted at future meetings.” The Doves: “Several participants noted that if the economy performed in line with its current outlook, more firm monetary policy might not be necessary after this meeting.” Conclusion: we’ll see.
the next meeting
This same Wednesday, one of the members of the monetary policy committee, Governor Christopher Waller, has indicated that it is too early to know what will happen at the next meeting of the Federal Reserve on interest rates, which will be held on the 13th and June 14. In an intervention, he has shown himself in favor of maintaining flexibility until then. In any case, even if there is a pause, that does not mean that the rates have peaked, he explained.
“I am not in favor of stopping raising rates unless we have clear evidence that inflation is approaching our 2% target,” Waller said at an event at the University of California at Santa Barbara. “But whether or not we should go up at the June meeting will depend on how the data comes out in the next three weeks,” he added. By the time a decision is made, the inflation data for May and many other indicators will already be known. The minutes of the last meeting published this Wednesday do not clear up the doubts.
“We still have some important data releases ahead of us in the next three weeks and I will also get a better understanding of how credit conditions evolve, both of which will inform me on the best course of action,” Waller explained. “Between now and then, we must remain flexible about the best decision to make in June.”
In a recent speech, Powell insisted that the banking storm could translate into lower rate hikes: “Although financial stability instruments have helped to calm conditions in the banking sector, developments in that sector, on the other hand, are contributing to tighten credit conditions and is likely to weigh on economic growth, hiring and inflation. As a result, our key interest rate may not need to rise as much to meet our targets. Of course, the extent of this is very uncertain, ”he said at a conference in which he was participating with his predecessor Ben Bernanke.
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