Powell: Fed will lower interest rates “sometime this year”

The president of the Federal Reserve (Fed) of the United States, Jerome Powell, said this Wednesday that if the economy evolves “Generally speaking, as expected, it will probably be appropriate to start tapering the policy sometime this year.”.

“We think our policy rate is probably at its peak for this tightening cycle“, he noted minutes after the Federal Reserve announced that it is maintaining interest rates in their current range and that it does not expect it to be appropriate to reduce the target range until it is sure that inflation is moving sustainably towards the 2 %.

The US regulator decided to keep rates within the range of 5.25% and 5.5%, their highest level since 2001.

“The economic outlook is uncertain and we remain very attentive to inflation risks“said Powell, who explained that the regulator will continue to make its decisions”meeting after meeting”.

The Fed chairman stated that they do not need “better data” but “continuation of the good data we have been seeing”.

“We have six months of good inflation data, the question really is: are six months of good inflation data sending us a real signal that, in fact, we are on a sustainable path to 2% inflation? That is the question and the answer will come with more data”, he insisted.

The Fed is aware, he added, that “Cutting rates too soon or too much could lead to a reversal of progress” and would lead to “a stricter policy to bring inflation back to 2%”.

In the statement published by the Fed, the regulator explains that the Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international events.

The members of the Federal Open Market Committee (FOMC), the body in charge of deciding whether or not to raise rates, made this decision after concluding a two-day meeting.

The decision of the Fed It is known a few days after the United States announced that it closed 2023 with gross domestic product (GDP) growth of 3.1%, thanks to increased consumer spending despite inflation.

The figure is higher than estimated by economists and higher than the 2.1% of the growth recorded in 2022, the year in which the world’s first economy suffered a technical recession.

GDP is one of the data that the regulator closely analyzes, along with inflation, which in December abandoned its downward streak. Prices rose three tenths year-on-year and inflation closed the year at 3.4%.

This indicator had been falling in year-on-year terms since October and the rise represented a setback for the Fed’s objectives of returning it to 2%.

The US labor market is another of the data analyzed by the Fed and, far from cooling, it remains solid.

In December, the net creation of new jobs rose again and 216,000 were created, 43,000 more than those generated a month earlier, and the unemployment rate remained at 3.7%, a figure that does not seem to indicate that the labor market has been resented by rate increases.