Faced with the diverse readings associated with this measure, the expectation of the FED is to achieve a “soft landing” so as not to end up affecting the local economy, especially in the midst of these times of uncertainty due to the armed conflict between Russia and Ukraine.
Starting tomorrow, the US Federal Reserve (FED) will begin to implement one of the most complex and difficult measures proposed for this year by the agency, since it will proceed to increase bank interest rates that were brought to zero since the first quarter of 2020 precisely to support the local economy after beginning to feel the effects of the pandemic COVID-19.
Interest rates will start to rise from tomorrow
Although this measure had already been considered for several months due to the increase seen in the inflationary levels of the US dollar, it was precisely the president of the Fed, Jerome Powell, who indicated on January 26 that the institution was already ready to increase interest rates starting in March of this year, raising the possibility that at each meeting the measures discussed would be readjusted to adjust to the needs of the local economy.
However, several reports assure that due to the ongoing war between Russia and Ukraine in the territory of the latter, and motivated by the increase in the prices of a large number of products, Powell and the team of the FED will try to devise a plan of “soft landing” for the increase in interest rates, since on the one hand it will seek to curb the increase in inflation, but on the other it will try to prevent the local economy from entering a recession.
However, it is these last points that worry many analysts and economists who closely follow the case, precisely because they fear that this will have a counterproductive effect that will have repercussions on the residents of the North American country, especially given the fact that basic products and Raw materials have increased notably, costs that would become more expensive if interest rates go up.
the plan of the FED
Addressing these and other concerns, representatives of the FED They indicated that within the dynamic character that they will adopt for the measures, they contemplate increasing interest rates several times a year, starting with an increase of a quarter of a point in their short-term reference rate.
Another aspect that will be subject to successive discussions is the speed at which reinvestment in bonds will be reduced, something that the agency had already been doing, but in the current situation it could restrict the credits available to companies and consumers.
change in direction
Let us bear in mind that until the end of last year the FED had maintained a line mainly focused on alleviating the economic pressures generated by the pandemic by COVID-19, which had a negative impact on US residents due to the impossibility of carrying out their work activities at the rate previously maintained.
The measures taken by the FED at the beginning of the pandemic they served to support the residents, this accompanied by the overprinting of new dollars in the market, which resulted in an increase in inflationary rates, which also made its effects felt internationally, especially among the economies that manage reserves in the US currency. The most recent calculations revealed by local organizations indicate that inflation increased to 7.9%, this being the highest rate since 1982.
The change in known measures is intended to bring the economy to a level where supply and demand are more in sync. This was commented by Powell himself during a hearing before the Senate Banking Committee, where he recognized that this would make the purchase of property and real estate more expensive for both residents and companies, so the resulting setback should curb current inflation according to estimates. of the FED.
“a soft landing“
Regarding the way in which the measures will be applied, Powell assured that they will seek to make the transition as smoothly as possible, precisely so that they do not have a counterproductive effect on the residents of the country.
With what they define as a “soft landing“, Powell referred to the expectation of an implementation that guarantees economic growth, while unemployment falls below the levels currently seen, which were estimated at 3.8% a few weeks ago.
In the past, specifically between 1994 and 1995, the FED It contemplated similar measures to achieve what they defined as a soft landing after the recession that attacked the economy during that period. Reference rates increased from 3% to 6%, leading to a fall in inflation levels and in unemployment margins.
However, now the body behaves in a very different way from that time, since now there is more transparency in decision-making, as well as greater consideration of the position of the main companies at a local and international level. Therefore, it only remains to wait and see how these plans will be implemented.
And what will happen to the crypto sector?
In the case of the crypto sector, the readings suggest that the increase in interest levels could lead to a drop in liquidity seen so far within the sector, since by having smaller amounts of capital, it is possible that investors will feel more restricted when contemplating investing in digital currencies.
However, analysts are also optimistic in the medium / long term in relation to cryptocurrencies, especially in the face of the geopolitical panorama and the war between Russia and Ukraine, since this type of conflict only leaves economic vacuums that threaten the economies of the countries. countries involved, also affecting the nations that have financial ties with them.
Currently, the narrative that surrounds Bitcoin and the main cryptocurrencies is mainly associated with their usefulness as investment assets, whose main use is to serve as a refuge against the inflation of the most reputable fiat currencies. Therefore, a possible large-scale institutional adoption would also be on the table, especially among companies in the more traditional sectors.
Source: Yahoo! NewsArchive
Angel Di Matteo version / DailyBitcoin
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