- YOMIURI EDITORIAL
- U.S. interest rate
Will Fed’s Smaller Increase Help Ease Inflation?
17:12 JST, February 3, 2023
U.S. inflation, which has been at a historically high level, is showing signs of easing. It is hoped that the Federal Reserve Board will continue its careful analysis of prices and appropriately steer the U.S. economy.
The Fed has decided on a quarter-percentage-point increase to its benchmark interest rate, taking it to a target range of 4.50% to 4.75%.
The Fed began raising interest rates in March last year. Since June, the U.S. central bank had implemented consecutive increases of 0.75 points, three times greater than the previously standard increment. In December, the hike was scaled back to a half percentage point, and the Fed decided on an even smaller increase in its latest meeting.
The U.S. consumer price index increased 9.1% in June from a year earlier. The year-on-year increase fell in the following six months to 6.5% in December. It is understandable that the Fed has made flexible decisions on the target range by taking such data into account.
“The disinflationary process has started,” Fed Chair Jerome Powell said at a press conference.
In fact, some changes can be seen in U.S. price trends.
Gasoline prices are falling as surges in energy prices since Russia’s invasion of Ukraine have subsided. Supply constraints caused mainly by logistical disruptions have eased, slowing price hikes for goods. Prices of secondhand cars and information technology equipment, among other items, are lower.
On the other hand, companies continue to face pressure to raise wages due to labor shortages. Workers in the dining sector and other service industries who lost jobs amid the novel coronavirus pandemic have not returned in sufficient numbers. As a result, service prices continue to rise. It can be said that it is extremely difficult to discern consumer price trends for the immediate future.
Powell indicated that the policy of interest rate hikes would continue, saying it “would be very premature to declare victory” against inflation. The Fed projected a peak policy rate of more than 5%.
Some observers believe prices will increase worldwide, as demand rebounds in China for resources and food following the country’s lifting of its zero-COVID policy. This means that vigilance against inflation is still necessary.
The rise in consumer prices has arrived later in Japan compared to Europe and the United States. The nation’s December CPI, excluding perishables, grew 4% from a year earlier, the highest increase in 41 years.
Even so, the Bank of Japan has maintained its massive monetary easing measures. The central bank has said the policy should be in place because the CPI growth has been driven not by wage increases, but mainly by higher costs due to soaring energy prices.
However, the BOJ decided to tweak its monetary easing policy in December by widening the fluctuation range of long-term interest rates. If prices remain high, arguments for further revisions could intensify. It is hoped that the central bank will take a flexible stance in implementing measures while keeping a close eye on trends in prices and wages.
(From The Yomiuri Shimbun, Feb. 3, 2023)
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