On Wednesday, the US Federal Reserve (FED) reduced its reference interest rate by 0.5 percentage points, placing it in a range between 4.75% and 5.00%. This measure marks the first cut in four years and it is the beginning of a turn in the FED’s monetary policy, which since the end of the pandemic had raised rates with the aim of lowering inflationwhich reached a four-decade high of 9.1%. Inflation in the US currently stands at 2.5%.
This movement was in line with the expectations of investment funds, after the first alerts were raised at the beginning of August due to a Possible decline in economic activity in the United StatesThis created turbulence in the markets, especially on the Japanese stock exchange.
In the North American country, The federal funds rate is the benchmark for the entire financial system. and is decisive for loans between banks. The Federal Reserve has been using it as an instrument to try to moderate the consequences of the international economic crisis that broke out in 2019 along with the coronavirus quarantines. It had brought the reference rate to its highest level since 2001 and prices were falling slowly, but the acceleration of its decline and Fear of a recession led them to change direction.
Raising interest rates encourages a decline in investments and the shift of large capital into financial speculation. The opposite policy (lowering interest rates) seeks to make credit for consumption and investment cheaper, but interest rates are only one factor in the global economy. The United States is at a crossroads as it faces off for global dominance with China and is just months away from the unpredictable presidential election between Trump and Kamala Harris.The Fed’s measures are far from guaranteed success.
The possible impacts in Argentina
The FED’s decision not only affects the US, but also the global economy, including Argentina. With lower rates, credit becomes cheaper and the aim is to boost economic activity. But With the country over-indebted and prices for its main exports, such as soybeans, falling, it is difficult for the government to take advantage of the changes underway..
Perhaps for this reason the country risk remained almost unchanged This indicator, prepared by JP Morgan and reflecting the expectations of vulture funds that Argentina will be able to pay its foreign debt, fell only 7 units and ended the day at 1,363 points. In the same sense, the Merval, the Buenos Aires stock exchange, closed almost without differences with its previous price.
In the medium term, a cycle of low interest rates by the Federal Reserve could help the Government’s objective of regaining access to international markets, due to the lower cost and the disincentive for investment funds to buy American bonds. But that future looks very far away with the Negotiations with the IMF stalled and the accumulation of unpayable amounts of external debt in the coming years. But even if it happens, we have already seen the consequences of having Caputo in charge of the State’s finances and with the possibility of accessing international credit.
Storm clouds on the horizon?
Despite this change of direction in monetary policy, Jerome Powellthe president of the Federal Reserve, dismissed the possibility of an imminent recession in the US. “I don’t see anything in the economy right now that suggests the probability of a slowdown is high,” he said at a press conference. If the statement is necessary it is because the danger is real, with the international economy slowing down and trade falling due to increased competition, The scenario may become more complex sooner than expectedNovember 5 could result in Trump being declared the winner, which would bring significant changes to American policies, and even if Harris were to win, the open contradictions that the Democratic government leaves open are not few.
As the Federal Reserve contemplates 50 basis points of additional cuts in the remainder of 2024, demands from workers affected by inflation are emerging from below. More than 30,000 Boeing factory workers are on strike demanding better working conditions. It is the first strike at the company since 2008.
Milei and those closest to her are asking the forces of heaven for Donald Trump to take over as president in the hope that he will grant them a new loan through the International Monetary Fund. But USA faces its own problems that could lead to searching impose conditions of greater submission on dependent countriesregardless of promises of zero deficit or selfies with Elon Musk.
Source: www.laizquierdadiario.com
