It was actually quite predictable: after ten consecutive interest rate hikes, the Fed was stalled yesterday. However, there was something strange about the Fed’s decision, says macroeconomist Edin Mujagic. Because while all the economic signs were actually green – higher inflation and falling unemployment – a new interest rate hike was in line with expectations.
Listen to Macro with Boot and Mujagić
Especially since one of the biggest mistakes of the past two years has been waiting too long to raise interest rates. And while Jerome Powell doesn’t make interest rate decisions himself, Mujagic says the Fed chief isn’t entirely blameless. “If the Fed sees all the green lights and still doesn’t raise interest rates, I can’t escape the impression that the central bank doesn’t want to raise interest rates.”
There is probably a fear that each new increase in interest rates could lead to unpredictable consequences. So it might be wise to pause and announce that you’re looking at how previous interest rate hikes have played out. ‘And what you’re not saying then, but what I heard yesterday, is that in the meantime you’re hoping that the macroeconomic data in the next few weeks becomes such that in about four to eight weeks you can say they don’t have to pay those interest rates to raise.’
While an interest rate hike to 5% is ultimately inevitable, the Fed is clearly struggling with the new phase, where the consequences of every small rate change need to be carefully weighed. The same consideration applies to the ECB, which in the meantime raised interest rates by 0.25 percentage points. A fine balance remains between stable inflation and acceptable interest rates. Luckily, Powell proves to be a skilled communicator time and time again. “If anyone can guide the Fed through this linguistic quagmire, it’s him.”
Source: BNR
Andrew Dwight is an author and economy journalist who writes for 24 News Globe. He has a deep understanding of financial markets and a passion for analyzing economic trends and news. With a talent for breaking down complex economic concepts into easily understandable terms, Andrew has become a respected voice in the field of economics journalism.
