After two cuts in official interest rates by the European Central Bank (ECB), the US Federal Reserve (Fed) has announced its first cut in this cycle of monetary austerity. The North American central bank is easing the official “price” of the currency for the first time since 2020, with a half-point cut, in a range between 4.75% and 5%.
The cut is the Fed’s first since 2020, when it left interest rates between 0% and 0.25% to support the recovery from the pandemic. In March 2022, it began raising them aggressively to fight inflation. The ECB waited longer to follow that same path, until June. Now, it is reversing for the first time and planning another cut for the rest of the year.
Meanwhile, central banks have sought to hurt the economy to combat rising prices. A strategy that risked triggering a recession and destroying jobs. Currently, inflation in the United States is 2.5% over a year, its lowest since 2021, while signs of slowing growth in activity and the labor market are emerging.
The story remains the appearance of Fed Chairman Jerome Powell in the upper house of the US Congress in early 2023, when he admitted that his decisions were continuing to increase unemployment. He did so after Democratic Senator Elizabeth Warren told him that monetary austerity would deprive two million people of their jobs.
After an initial decline on Wednesday, financing conditions (the cost of mortgages and other loans) remain “restrictive,” as central banks call them. A term that means they harm the purchasing power of families and the ability of businesses to invest. The path of monetary policy to combat inflation.
Of course, the Fed’s decision opens the way for further rate cuts by the ECB, where the risk is that Germany and France, whose economies are stagnating, will fall into recession. Spain, for its part, is a positive exception. The ECB is conditioned by the Federal Reserve because if a significant gap opens between the rates of the eurozone and those of the United States, a depreciation of the euro could occur against the inflationary dollar, since automatically imports of oil and other raw materials or products that are traded in dollars would become more expensive due to the effect of the exchange rate.
