United States: The Fed pauses in its tightening cycle of monetary policy
Global - May 02 2019
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United States: The Fed pauses in its tightening cycle of monetary policy
Despite a strong job report (non-farm job creations totalled 196,000 in March, a reassuring figure after the 33,000 creations for February) and a sharp rise in wages (the average hourly wage posted an increase of 3.2% on a year-on-year basis), the Fed is pausing in its cycle of tightening the monetary policy. Indeed, following this year’s third meeting of the Monetary Policy Committee, the Fed maintained, in a unanimous decision, its overnight rates in the range of 2.25% to 2.50%, repeating that the institution would be patient towards determining future adjustments.
Key interest rates vs. inflation: the tightening cycle pauses!
The Fed did not respond to earlier injunctions from Donald Trump, demanding that the Central Bank cut interest rates. The institution, independent of the executive, will not lower its rates on the basis of a tweet, even if it is a tweet from the President of the United States… The manufacturing activity slowed more than expected in April, falling to its weakest pace since the election of Donald Trump, according to the manufacturing ISM index. And inflation is low. But, as Rabobank points out, the United States economy is not going so badly: “If we compare the pace of growth over one year, the 1.2% of the eurozone is significantly below the 3.2% published the week last for the United States.”
All in all, if inflation were to fall further, a rate cut could be discussed at Fed's next monetary policy committees. On the other hand, high wage inflation, a good measure of inflationary pressures at work, points to a rise in inflation in the second half of the year. Anyway, Donald Trump can boast of having inspired a pause at the Fed in its cycle of tightening monetary policy.
Julien Moussavi, Head of Economic Research
Source: Datastream, Beyond Ratings