AFP, published on Wednesday 21 September 2022 at 11:42 pm
The US central bank (Fed) gave its monetary policy a strong new twist on Wednesday, in the face of still too high inflation, and warned it should tighten further, which will be painful for families.
“We need to realign supply and demand. And our way to do that is to slow the economy down,” Fed Chairman Jerome Powell said during his press conference.
The powerful US Federal Reserve thus raised its main reference rate by three quarters of a percentage point, which is now between 3.00 and 3.25%.
This is the third consecutive time that the Monetary Policy Committee (FOMC), the decision-making body of the Fed, has made an increase of this magnitude. It started in March with a customary quarter-point increase, and then increased by half a point in May.
And the movement is expected to continue into 2022, until the key rate has increased by another percentage point.
Because the Fed is “firmly determined to bring inflation to 2% and will remain so until the job is done,” hammered Jerome Powell, also warning of risks that could lead to “premature easing of monetary policy”.
The New York Stock Exchange closed lower on Wednesday, taken aback by these even more voluntary-than-expected forecasts in terms of monetary policy.
– No “painless” way –
Raising the guide rate increases the interest rates of the various loans to individuals and professionals, in order to slow down economic activity, and therefore to ease the pressure on prices.
Mortgage rates, for example, have soared since the beginning of the year, even exceeding 6% for a 30-year loan, the first since 2008. This is pushing down sales in this sector, which had shown a healthy insolence since the start of the pandemic.
But it won’t be easy: “We have to put inflation behind us. I wish there was a painless way to do it, but there isn’t,” Powell said.
Thus the Fed, which also updated its forecasts for the American economy, now expects GDP growth to be almost zero in 2022 (+ 0.2%), when it counted, in June, on + 1.7%. It then sees it rebound to 1.2% in 2023.
This will raise the unemployment rate, which currently stands at 3.7%, one of the lowest in the last 50 years. It is expected to reach 3.8% on average in 2022 (3.7% previously forecast), then 4.4% in 2023 (3.9% forecast in June).
However, the healthy state of the labor market leaves room for the Fed to take decisive action when there are not enough workers to fill all vacancies.
– Inflation of 2.8% in 2023 –
Inflation forecasts, on the other hand, remain close to what was expected in June: 5.4% in 2022 (compared to 5.2%) for the PCE inflation index, and then sharply slowed down in 2023, to 2.8% (against 2.6% previous).
The Fed favors this inflation index, which in July stood at 6.3% over one year, according to the latest data available, to the CPI index, which refers in particular to the indexation of pensions.
It is true that in the United States it slowed down in August, thanks to the drop in gasoline prices, but, at 8.3% over one year in August, it still showed strong pressure on prices, with generalized inflation.
This deliberate slowdown of the economy is very complicated, because excessive braking could plunge the United States into the recession that is already hovering over the entire global economy.
Allowing inflation to take hold, however, would involve even more painful measures for households and businesses, as was the case 40 years ago, after years of rising prices, sometimes close to 15%.
The US central bank, like its counterparts around the world, is trying to curb inflation caused by supply chain disruptions linked to Covid-19 and exacerbated by rising energy and food prices with the war. in Ukraine.
Many are meeting this week, including the Bank of England (BoE) and the Bank of Japan (BoJ) on Thursday. On Tuesday, Swedish bank Riksbank created the surprise with an unprecedented one point hike.
In early September, the European Central Bank (ECB) had raised rates by three quarters of a percentage point, unprecedented.
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