Those responsible for the United States Federal Reserve assumed the ramifications of the most recent reduction of the American government’s credit qualification and the unstable market conditions on Monday, while they continue to sail in a very uncertain economic environment.
“We will put that reduction in the same perspective that we do with all the information that comes to us: what are the implications of this in terms of achieving our goals without commenting on what this reduction could mean in a kind of context of political economy,” said the vice president of the Fed, Philip Jefferson, at a conference held by the Bank of the Federal Reserve of Atlanta.
The Moody’s qualification agency reduced a step on Friday afternoon the credit rating of the US government in the midst of the growing concern for the deficits and interest costs, which follow at an unsustainable rhythm. It was the last of the main qualification agencies to cut the sovereign note of the United States from the highest level.
Although it is not an imminent problem for the Federal Reserve, over time the increase in the costs of loans in the market, together with the deterioration of the financial situation of the United States, increases credit in general and slows economic activity.
LEE: Trump does not agree with the Moody’s A Eu qualification reduction
In turn, this becomes a factor to take into account when setting monetary policy and its expectations about the long -term evolution of economic activity.
The qualification reduction “will have implications for the cost of capital and many other things, so it could have an impact on the economy,” said Fed President of Atlanta, Raphael Bostic, in a CNBC interview on Monday.
With the economy in constant change, “I think we will have to wait for three to six months to begin to see how this is based, and I think that will be a determining factor on the will and appetite of the people for investing in the United States.”
Although the concern for the government’s financial situation exists for years, and the Fed authorities have periodically noticed that long -term indebtedness trends have followed an unsustainable path, the huge current levels of expenditure, united to the Republican budget plan that is being studied and that will probably add even more debt, they fear an imminent crisis.
At the same time, the aggressive and erratic commercial policy agenda of the Donald Trump administration, which points to most nations in the world with high tariffs in an attempt to bring more factory work back to the country, is shaking confidence in the United States as a reliable place to invest.
On Monday, stock markets fell while bond yields rose. President Trump said he did not agree with the measure taken by Moody’s.
EU is still attractive
In his speech at a conference of mortgage bankers in New York, the president of the Fed in New York, John Williams, recognized market problems, but suggested that some of the concerns are exaggerated.
“We have heard in recent months some rumors or concerns about whether investors want to invest so much” in treasure bonds and other dollars, given the great changes in government policy and high levels of economic uncertainty, said Williams.
Investors are “clearly” weighing future options, he said. However, “they have seen and continue to see” the United States as “a great place to invest, including treasure bonds, fixed income assets, so I think that narrative is still there.”
Lee: Wall Street remains stable after a note from note to EU
The Federal Reserve officials who spoke on Monday also continued to send a waiting signal about the perspectives of monetary policy.
Williams said the economy is in a good time and that the interest rates policy is “well positioned” to respond to what is coming. While Bostic said that, with his current expectations that he will now have more time to reduce inflation to 2%, “I lean much more for a cut this year.”
With Reuters information
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