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29.08.202207:06 Forex Analysis & Reviews: Senator Warren concerned about Fed's strategy to hike interest rates

The US Federal Reserve will remain hawkish and focus on inflation, Chairman Powell said on Friday, adding that US economic growth will slow down and unemployment will rise. It comes as no surprise as rate hikes have always triggered a cooling effect on the economy. Still, not all US officials agree with such an approach. In the European Union, they are trying to balance between maintaining economic growth and fighting inflation. In the United States, however, their primary concern is to bring inflation to the 2% target, with little attention paid to economic growth. The Federal Reserve reckons that a decrease in GDP is not a recession because the latter is always followed by a wave of bankruptcies, rising unemployment, contraction in the jobs market, and other sad events. Right now, there is just a fall in GDP, which could be interpreted as a correction after strong growth. Nevertheless, business activity is slowing down as well as industrial production, and things are only getting worse.

Senator Elizabeth Warren said on Sunday that she is concerned about the regulator's plans to further tighten monetary policy as recession risks are increasing. In her view, high prices and millions of unemployed are worse than high prices and a strong economy. She believes, the Federal Reserve's actions are likely to lead to high unemployment and negative economic growth rather than to low inflation. "I just want to translate what Jerome Powell just said. What he calls 'some pain' means putting people out of work, shutting down small businesses, because the cost of money goes up, because the interest rates go up," Warren said on Sunday. Elizabeth Warren may be partially right. The Bank of England, for example, has raised the benchmark rate six times in a row but inflation is still on the rise. Of course, the situation in the UK is somewhat different because the country has recently been through Brexit. Governor Andrew Bailey sees the United Kingdom sliding into a recession in the last six months of the year. Meanwhile, US inflation might be declining rather slowly, not in line with the central bank's expectations. Moreover, consumer prices have so far fallen just once. There is no guarantee that the slowdown will continue. It might be a drop of as much as 0.1-0.2% a month, taking the Federal Reserve several years to bring inflation to the 2% target. All this time, the American economy would be under tremendous pressure. The inflation report due on September 14 will clear things out. It will be released a week before the next rate hike and show whether Mr. Powell and the Committee are right in their pledge to forcefully and rapidly act against inflation.

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Paolo Greco,
Analytical expert of InstaSpot
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