For the Federal Reserve, the US economy is headed for further strengthening and these are the three reasons that justify the increase of its rate of Federal Funds.
The Fed raised its benchmark rate by 25 basis points to 0.75-1.0 percent on Wednesday, its third increase in the past three years after employment and inflation.
For the Fed, this movement is a precautionary one, since the economic conditions of the United States point to a greater strengthening of the economy, to continue with the expansion of productive investments, the creation of jobs and greater inflation, in this case Attributed to an increase in the price of energy.
These are the Fed’s three reasons for increasing its Federal Funds rate.
1. LABOR MARKET
With regard to the labor market, the Fed notes that in February there was a continuous strengthening of the labor market, along with a moderate expansion of economic activity; As a result, job creation remains solid and the unemployment rate shows slight changes in recent months. The Committee’s expectations suggest that with a gradual adjustment in monetary policy, economic activity will expand at a moderate pace and labor market conditions will be strengthened a little more.
In its statement, the Fed mentions that inflation has increased in recent quarters, approaching the long-term goal of 2 percent. Market expectations suggest that inflation gains remain low, but in long-term expectations the latest polls indicate that few changes are expected. The Committee’s expectations for inflation point to stabilizing at around 2 percent in the medium term. He also noted that he will continue to closely monitor the behavior of this indicator.
3. CONSUMER CONFIDENCE
In addition, as a result of job creation, the Committee notes that household expenditure continued to increase moderately, while gross fixed investment in business appears to have been consolidated. The risks to economic expectations are balanced in the short term.
Meanwhile, at her press conference, the Fed chairwoman said that economic adjustments such as fiscal policy may affect Fed expectations.