USA: In view of the inflation, the Fed countered with a new interest rate hike of 75 basis points

The Federal Reserve “is committed to bringing inflation down to 2% and will remain so until the job is done,” President Powell said.

The US Federal Reserve (Fed) on Wednesday gave its monetary policy a new bold course in view of the still far too high inflation and warned that it must tighten further, which will be painful for the budgets.

The mighty US Federal Reserve raised interest rates by three-quarters of a percentage point to a range of 3.00 to 3.25%.

This is the third consecutive time the Monetary Policy Committee (FOMC), the Fed’s decision-making body, has issued an increase of this magnitude. It had started a usual quarter-point rise in March before climbing a half-point in May.

And the movement is expected to continue in 2022 until the key interest rate is raised by another percentage point.

The Fed is “firmly committed to bringing inflation down to 2% and will remain so until the job is done,” pounded its President Jerome Powell during a news conference on Wednesday. He even warned of the risks that “premature monetary easing” could pose.

By raising the policy rate, interest rates on various loans to individuals and professionals will increase in order to curb economic activity and thereby ease price pressure.

“We need to rebalance supply and demand. And we’re doing that by slowing down the economy,” said Jerome Powell.

Mortgage interest rates have risen since the beginning of the year and for the first time since 2008 have just surpassed the 6% mark for a 30-year loan. This is depressing sales in the sector, which has performed outrageously well since the pandemic began.

No “painless” way to deal with inflation

But getting inflation back on track will not be painless, the institution’s president has warned.

“If we want to return to a very strong phase of the labor market, we have to put inflation behind us. I wish there was a painless way to do this, but there isn’t,” Powell explained.

The Fed, which has also updated its forecasts for the American economy, is now forecasting GDP growth of almost zero (+0.2%) for 2022, while it was still expecting +1.7% in June. She then sees a rebound to 1.2% in 2023, but less than the 1.7% growth she was expecting in June for next year.

Inflation forecasts, on the other hand, remain close to what was expected in June: 5.4% in 2022 (vs. 5.2%) for PCE inflation, before spiking sharply to 2.8% in 2023 (vs. 2.6 previously). %) slowed down.

The Fed prefers this inflation index, which stood at 6.3% over one year in July according to the latest available figures, over the CPI index, which refers in particular to the indexation of pensions. In the United States, while slowing in August thanks to the fall in gasoline prices, at 8.3% over a year in August it still showed very strong pressure on prices amid general inflation.

rise in unemployment

This intentional economic slowdown is very delicate, because too much of a brake could plunge the United States into recession, which is already hanging over the entire global economy.

However, the excellent health of the job market gives the Fed room to act aggressively.

The current unemployment rate of 3.7% is one of the lowest in 50 years and there is not enough labor to fill all the vacancies. The Fed expects it to rise to an average of 3.8% in 2022 (3.7% previously expected) and then to 4.4% in 2023 (vs. 3.9% expected in June).

But curbing inflation would mean even more painful measures for households and businesses, as was the case 40 years ago, after years of rising prices, sometimes approaching the 15 percent mark.

The US Federal Reserve, like its peers around the world, is trying to stem inflation caused by supply chain disruptions related to Covid-19 and exacerbated by rising energy and food prices with the war in Ukraine.

Many meet this week including Thursday, Bank of England (BoE) and Japan (BoJ). On Tuesday, the Swedish bank Riksbank surprised with an unprecedented increase of one point.

At the beginning of September, the European Central Bank (ECB) raised its key interest rate by three-quarters of a percentage point, which was unprecedented.

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