Raising interest rates for the tenth time in a row, the Fed faces difficult choices.

　　Xinhua News Agency, Beijing, May 5th(International Watch) Raising interest rates for the tenth time in a row, the Fed faces difficult choices.

　　Xinhua News Agency reporter Xiong Maoling Liu Yanan

　　Inflation remains high, economic growth slows down significantly, and the banking crisis continues to ferment … … Under the background of multiple economic difficulties in the United States, whether the Federal Reserve will suspend interest rate hikes and when the current interest rate hike cycle will end have attracted much attention. After the latest monetary policy meeting, the Federal Reserve announced on the 3rd that it would raise interest rates by 25 basis points again. This is the tenth rate hike by the Federal Reserve since March last year, and the cumulative rate hike has reached 500 basis points.

　　Although the Fed’s interest rate hike policy continues, the wording of the statement of the Federal Open Market Committee, which is responsible for formulating monetary policy, has changed. The statement revised the previous statement that "some additional policy tightening may be appropriate" and replaced it with "judging to what extent additional policy tightening may be appropriate". Some analysts believe that this revision shows that the Fed may suspend interest rate hikes.

　　However, Federal Reserve Chairman Powell did not rule out the possibility of continuing to raise interest rates, saying that the Fed would make a decision based on specific economic data in the future.

　　In fact, the Fed is facing a difficult choice. On the one hand, although the rate hike has eased the inflation situation, the inflation level is still at a high level. The data shows that the consumer price index (CPI) in March rose by 5% year-on-year, the smallest year-on-year increase since May 2021, but it is still far higher than the Fed’s long-term inflation target of 2%.

　　On the other hand, the Fed has been "soaring" on the road of raising interest rates, which has pushed interest rates to the highest level in 16 years, and its inhibitory effect on economic growth has gradually emerged. The construction industry and manufacturing industry in the United States have obviously cooled down, and personal consumption has also slowed down significantly in February and March this year. In the first quarter of this year, the real gross domestic product (GDP) of the United States increased by 1.1% at an annual rate, significantly lower than the 2.6% in the fourth quarter of last year.

　　Aggressive interest rate hikes also triggered a regional banking crisis. Following the closure of Silicon Valley Bank, Bank of JPMorgan Chase recently acquired First Total Bank, indicating that the banking crisis is still brewing. However, Powell said that the overall situation of the US banking industry has improved, and JPMorgan Chase’s acquisition of First Total Bank is an "exception".

　　Desmond Rahman, an economist at the American Enterprise Institute, told Xinhua that the Fed’s actions seem to ignore the credit crunch caused by the banking crisis and the impact that the imminent debt ceiling crisis may bring to the financial market. The Fed continues to raise interest rates, putting the United States at risk of a hard landing.

　　Many economists and market participants said that the US economy may fall into recession later this year due to the weakening of growth momentum, the aggressive interest rate hike by the Federal Reserve and the banking crisis. Some Democrats, including US Senator elizabeth warren, recently sent a joint letter to Powell, urging the Fed to stop raising interest rates, and warning that excessive interest rate hikes will cause more people to lose their jobs, destroy small businesses and plunge the US economy into recession.

　　Gregory Dako, chief economist of Ernst & Young-Bochum, believes that it would be a "prudent decision" for the Fed to suspend interest rate hikes now. He said that with the slowdown of economic activities, the risks facing the US economy are increasing. However, some analysts said that under certain conditions, the Fed may still continue to raise interest rates. Sima Shah, chief strategist of Principal Global Investment Company, believes that if the data shows that the economy is only moderately slowing down, inflation is still at a high level, and the banking crisis is "controlled to a considerable extent", it is not excluded that the Fed will continue to raise interest rates in June.