The FED expects to achieve a “soft landing” to avoid affecting the local economy, especially during these uncertain times of conflict between Russia and Ukraine.
The US Federal Reserve (Fed) begins to implement one of the most complex and challenging measures proposed for this year by the agency since it will proceed to increase bank interest rates. These interests went to zero early in 2020 to support the local economy after the COVID-19 pandemic felt.
Interest Rates will Experience an Increase
Although this measure was under discussion for various months, due to the increase seen in the inflationary rates of the US dollar, Jerome Powell highlighted on January 26 that the entity is ready to increase the interest rates from March of this year. This measure intends to elevate the possibility that the steps discussed would adapt to the local economy’s requirements.
Several reports clarify that due to the ongoing armed conflict between Russia and Ukraine in Ukrainian territory, Powell and the FED team would work on a strategy tied to a soft landing against increased interest rates.
This measure will deal with the increase in inflation and try to prevent the local economy from experiencing a recession.
However, these points worry many experts who follow the case because they are afraid that this situation could have a negative effect that will have consequences on the residents of the North American country, mainly because primary products and Raw materials have increased considerably. These costs will reach higher rates if interest rates start to rise.
The Fed’s strategy
Representatives of the FED highlighted that within the dynamic nature that they will adopt for the procedures, they intend to increase interest rates several times a year; this increase could get based on a rise in a quarter of a point in its short-term reference rate.
Another factor that could be the subject of future debates is the speed at which reinvestment in bonds will get reduced, a factor that the agency had already been executing. Still, it could obstruct the credits currently active to companies and consumers amid the current situation.
A change is on the Way to Impacting the Economy
Until the end of last year, the FED had defended its position in a line primarily focused on softening the economic pressures caused by the pandemic, which harmed US residents due to the impossibility of carrying out their work activities.
The procedures carried out by the FED at the beginning of the pandemic served to support residents, accompanied by the overprinting of new dollars in the market, which became an increase in inflation rates, which spread its effects to international levels.
The change in known procedures plans to bring the economy to a level where supply and demand get more synchronized. This subject came from Powell himself during a hearing before the Senate Banking Committee. He acknowledged that this measure would make the property and real estate purchase more expensive for both residents and companies.
By: Jenson Nuñez
