WASHINGTON, Dec 2  – Officials at the US Federal Reserve have indicated they plan to raise interest rates by half a percentage point at their meeting this month, and although that would be a smaller increase compared to recent increases rates, new projections then released could show a policy rate heading toward levels not seen since the eve of the 2007 financial crisis.

In addition, new forecasts from the 19 US central banks could show Fed rates staying at that high level at least until 2023, which would go against market expectations for rate cuts by the end of next year. year.

The updated outlook will be another opportunity for Fed leaders to show how their “raise and hold” strategy is expected to play out in terms of the final level of the overnight policy rate, as well as growth progress. , inflation and unemployment, with prospects for a resilient economy.

The Federal Open Market Committee (FOMC) will meet on December 13-14, ending a volatile year in which the central bank has responded to the fastest burst of inflation since the 1990s. 1980 with the fastest interest rate rise since then to try to counter it. That aggressive response sent shockwaves through the financial system that at one point wiped out nearly $12 trillion in value from the US stock market and, more recently, pushed home mortgage rates to 7% for a population accustomed to cheap money. .

Equity markets have rallied of late and soared this week when Fed Chairman Jerome Powell, in what was probably his last public statement before the meeting, said the Fed was prepared to halt a series of four consecutive three-quarter point rate hikes, a potentially uncomfortable result for a Fed chair who wants to maintain tight financial conditions and keep public expectations firmly focused on the inflation battle.

However, Powell has also been adamant about the cost. Even if the central bank starts to apply half- or quarter-point hikes, the policy rate is heading toward an as-yet-undefined “appropriately tight” stopping point, and policymakers intend to leave it there “for some time.” weather”.

Fed officials, from San Francisco Fed President Mary Daly to St. Louis Fed President James Bullard, who are often at opposite ends of recent monetary policy debates, have talked about the possibility of rates rising above 5% next year. The last time the Fed’s key interest rate rose above that point was between June 2006 and July 2007, at the start of the financial crisis and recession of 2007-2009, when the Fed’s benchmark rates reached 5.25%.

If there are concerns about crossing that line, Fed officials have not voiced it. New York Fed President and FOMC Vice Chairman John Williams recently said that he would expect a “tight” interest rate “at least until next year.”

INFLATION “TOO HIGH”

In a long talk at the Brookings Institution this week, Powell outlined what may be a long transition for the Fed and the US economy into a world of only slowly receding inflation, high interest rates and potentially chronic worker shortages.

To slow the pace of price increases, he said it was clear that energy had to be drawn from a labor market where the demand for workers continues to far exceed the number of people willing to take jobs, an imbalance housed in the demographics and US immigration policy, and amplified by the pandemic.

The new Summary of Economic Projections will include estimates of the magnitude of the price that Federal Reserve officials believe it will pay in terms of rising unemployment and slowing growth when its monetary policy begins to take effect.

Data released Thursday showed the Federal Reserve’s preferred measure of inflation was 6% in October, down from September’s 6.3% rate and the lowest level this year, but still triple the rate. Federal Reserve’s 2% target.

“It will take a lot more evidence to confirm that inflation is really coming down. By any measure, inflation is still too high,” Powell said.

Friday’s jobs data will provide an estimate of November payroll growth, another important piece of information for policymakers, who see prices unlikely to fall until job and wage growth slow.

The economy has been adding an average of 407,000 jobs a month this year. Although the pace slowed to less than 290,000 between August and October, and analysts are forecasting as low as 200,000 new jobs for November, that is still above the 183,000 added monthly in the decade before the pandemic.

PROJECTIONS FAR FROM REALITY

The Fed’s projections have rushed throughout the year to catch up with reality. Last December, the median projection of those responsible was that their monetary policy rate would end in 2022 at just 0.9%, with the inflation measure taken as a reference falling to 2.6%; this bet implied that inflation would partly reduce itself. The Fed’s highest individual rate projection was just 1.1%.

They were wrong by a factor of four. With the half-point increase expected at the next meeting, the official interest rate will end the year in a range of between 4.25% and 4.5%.

Powell has recognized this week the difficulty of making forecasts in an environment still disturbed by the pandemic and its aftermath.

There aren’t many options, however, at a time when the central bank is ending its forward push of rate hikes to tighten lending and credit conditions — the mechanism through which the Fed is trying to change course on the economics—and begins, as Powell described it, to “feel” its way to a stopping point.

In September, the Fed’s narrative still included a benign outcome of continued growth, steady progress in inflation, and an unemployment rate rising less than a percentage point, to 4.4% by the end of next year from the 3, 7% now, what some have called a “stainless ‘disinflation'” that would come at little cost to the real economy.

The Fed interest rate will be at 4.6% at the end of 2023.

According to Powell, it will have to be “somewhat higher.” The next projections will show that final destination that may be in sight, and will also give a better evaluation of the possible cost.

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