The last time the United States had higher interest rates than now Google, Facebook and Instagram did not exist, the Twin Towers loomed on the Manhattan skyline, and Tony Blair was the British Prime Minister. And Alan Greenspan was the president of the central bank. The world economy was a very different animal.

But, beyond the symbolism, the milestone marked by US monetary policy seems to have few practical consequences. The increase is a quarter of a point, and leaves the official rates between 5.25% and 5.5%, something that was already fully discounted by the market. At its next meeting, in six weeks, the Open Market Committee, which is the body of the central bank that decides on monetary policy, will once again raise rates another quarter of a point, leaving them between 5.5% and 5. .75% and, unless the economic outlook changes drastically, it will leave them there until 2024, when it starts to drop.

It is not only the market that foresees it; It is the International Monetary Fund (IMF) itself who said it yesterday. In 2021, the Fed was resoundingly wrong – along with the other central banks and international organizations, with the exception of the Basel Bank for Settlements – when it came to predicting the extent of inflationary pressures caused by the closures and blockades of supply chains. and the expansive fiscal and monetary policies triggered by Covid-19. The result has been the highest inflation in 40 years and also the toughest monetary tightening in four decades.

Now, after enduring a barrage of criticism for his failure to prevent inflation, Fed Chairman Jay Powell – who, like ECB’s Christine Lagarde, is not an economist but a lawyer – has managed to reaffirm his authority. Today’s rate hike has been unanimously approved by the Committee. And the market has hardly reacted. The Stock Market, more interested in business results for the second quarter than in rates, rose for the thirteenth consecutive day, debt barely moved up, and oil fell -as expected- slightly.

This was made clear by Powell, who declared at a press conference that there is still “a long way” until the US reaches the price target of $2 in the medium term, while insisting that monetary policy decisions “will depend on the data “.

The Consumer Price Index (CPI), in fact, is falling into a tailspin. In June it fell to 3%, very close to the Federal Reserve’s target. But that does not mean that the battle against price increases is won. But core inflation, which excludes the most volatile elements of the index – fresh food and energy – is at 4.8% and falling much more slowly. This indicates that inflationary pressures continue.

The same is true of the Federal Reserve’s preferred measure of inflation, the less volatile Personal Consumption Index, showing a similar assessment, with the headline falling faster than the core, although the trend for both is clearly downward. At the same time, job creation seems to have started to slow down, which is very important for the ‘Fed’, which has tried, with rather little success, to follow a modernized version of the so-called ‘Phillips Curve’, according to which there is an inversely proportional relationship between unemployment and prices.

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