Yesterday, Thursday, the US government denied the expectations of the US Federal Reserve, which indicated a slight recession in the economy as a result of the impact of the bank collapse crisis in the US early last month.
The White House said in a statement, “The official data so far do not indicate that there is a looming recession in the economy,” and this came in response to what was revealed by documents published last Wednesday that included details of the last meeting of the Federal Reserve’s Open Market Committee in March. ) missed.
The details of the meeting of the committee that decides monetary policy in the United States included what economists at the Federal Reserve presented to the members of the committee, which indicated that the collapse of the “Silicon Valley” bank and others and the turmoil in the financial sector will have a negative impact on economic activity, leading to a slight contraction in growth. economy by the end of 2023.
And although the Federal Reserve Vice-Chairman in charge of financial control, Michael Barr, insisted on the safety and resilience of the US banking sector, economists at the Central Bank insisted in their presentation that the economy would receive a blow from the crisis of bank collapse.
A summary of the minutes of the Federal Reserve Committee meetings concluded that “taking into account their estimates regarding the possible economic effects of the recent recessions in the banking sector, the economists’ presentation at the last committee meeting included reference to a slight recession by the end of this year, provided that the economy recovers in the following two years.”
government and bank
After the committee meeting last month, the Fed’s forecast was for US gross domestic product growth of only 0.4 percent on average for the current year 2023 as a whole.
The crisis of bank collapse prompted some of them to estimate that the Federal Reserve had stopped raising the interest rate to curb high inflation, while the decision resulted in raising the interest rate by a quarter of a percentage point (0.25 percent), bringing the basic interest in the range of 4.75 and five percent.
In addition, the White House statement the day before yesterday reflects a disagreement between the US government figures and the central bank, which enjoys independence in setting monetary policy. As for the government’s fiscal policy, it is entrusted to the Treasury Department led by Secretary Janet Yellen.
political implications
The US administration does not want to talk regarding the possibilities of recession for fear of the political repercussions that might harm the democratic government among the voters, especially since there are presidential and congressional elections next year.
The divergence of trends between the government and the reserve is not new, as the chief economic adviser to the “Allianz” group, Muhammad Al-Erian, wrote on his page on social networking sites that “there is a gap between the estimates of economists working in the Federal Reserve and senior officials there,” referring to the previous wrong expectations regarding inflation and insistence It is temporary and phased, which is the opposite of what is happening now.
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The official inflation data issued since the last meeting of the Federal Reserve Committee cannot be ignored either, as it came to reinforce the view that the monetary tightening policy has begun to bear fruit and reduce demand in the economy, which puts downward pressure on inflation rates.
“Reflecting the impact of tightening in products and the labor market, we expect core inflation to begin to slow strongly next year,” the committee’s meeting minutes said.
However, the US markets moved last Wednesday in light of what was published in the minutes of the committee meeting regarding the estimates of economists at the Central Bank regarding the possibility of recession at the end of the year, and it is not known yet whether the White House statement will mitigate that negative impact or not?
The next meeting is the focus of attention
All eyes are now directed to the next meeting of the Federal Reserve’s Open Market Committee in early May, and whether it will decide to raise interest rates once more, even by a quarter of a percentage point, or will interest rates be fixed as they are now? But in any case, the markets have started By adjusting its estimates in light of the possibility of the Federal Reserve changing its policy, that is, starting to cut interest rates this summer.
Many suggest that even if the central bank fixes interest rates without change, the return to monetary easing, that is, the start of reducing interest rates, will not be soon, and therefore the markets must prepare to coexist for a longer period with the high cost of borrowing.
