The Federal Reserve of the United States decided to keep the target interest rate unchanged this week, which was in line with market expectations. However, Fed Chairman Jerome Powell delivered a message that contrasts with previous communications by mentioning significant risks in the labor and price markets that limit the institution's action at the current time.
Powell suggested the possibility that the U.S. economy may face a stagflation situation, reflecting concern about the economic uncertainty arising from protectionist trade policies that are affecting investment decisions. The lack of clarity in trade agreements between the U.S. and other nations is increasing the prospects of a possible recession.
In the first quarter of the year, the decline in U.S. Gross Domestic Product was driven by a significant increase in imports of inputs and industrial intermediate goods, which anticipates a rise in prices due to the implementation of tariffs. For the Fed, tariffs mean an increase in consumer prices in the short term, as well as a decrease in economic activity.
The Federal Reserve operates under a dual mandate different from that of the Bank of Mexico, which seeks to achieve full employment and an inflation rate of 2 percent. In scenarios of full employment with inflationary pressures, the Fed raises the interest rate to moderate demand and control prices. In contrast, when there is a deterioration in employment while inflation remains stable, the Fed opts to cut the interest rate to stimulate demand and encourage job creation.
Currently, the Fed faces a challenge in anticipating a rise in inflationary pressures and a weakening in employment on the economic horizon. It is a time of uncertainty that requires constant monitoring of key economic indicators to anticipate and respond appropriately to the actions that the monetary authority may take in the coming months.
