The US Federal Reserve is ready to resume the offensive once morest inflation that refuses to come down, its chairman Jerome Powell warned on Tuesday. “The most recent economic data is stronger than expected, which suggests that the final level of key rates will likely be higher than expected,” the Fed boss told a Senate committee.
In other words, the economy remains overheated and the main Fed rate might continue to climb beyond 5.1%, the level at which Fed officials saw it stopping, according to their latest forecasts published in December. . This increases the cost of credit, encouraging households to consume less, especially since their purchasing power is already dented by inflation. The objective is, ultimately, to ease the pressure on prices.
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After these clear statements by Jerome Powell, global stock markets sank into the red and US bond rates rose sharply. After a flat open, Wall Street fell sharply, with the Dow Jones ending down 1.72%, the Nasdaq 1.25% and the broader S&P 500 Index down 1.53%. European stock markets also tumbled into the negative. After the close, Paris lost 0.46%, Frankfurt 0.60%, Milan 0.67% and London 0.13%.
The key rate might remain high “for a while”,
Alexandre Baradez, analyst at IG France, considers these statements “quite logical given the content of the figures published in recent weeks and the persistence of inflation, particularly in services”.
“Jay” Powell also warned that the key rate might remain high “for a while”, while “January data on employment, consumer spending, manufacturing production and inflation partially reversed the easing tendencies”, which were taking shape the previous month.
On the bond market, the US two-year debt rate jumped and rose above the 5% mark, the highest since 2007. The US ten-year borrowing rate rose also stretched, temporarily going back above 4%, but less than that at two years.
Read once more: The Fed wants to convince the markets that they are wrong
As a result, the so-called yield curve inversion phenomenon, which means that short-term rates are higher than long-term rates, and which is often seen as a harbinger of an economic recession, has increased.
European rates for their part fell slightly from their peaks reached on Monday. The currency market also reacted strongly: around 10:50 p.m. in Switzerland, the dollar climbed 1.24% once morest the euro, to 1.0549 dollars for one euro, and 1.65% once morest the pound to 1.1827 dollar for a British pound, the highest since November.
The next meeting of the institution takes place on March 21 and 22. And the rise in rates might start once more: if necessary, “we would be ready to accelerate the pace of rate hikes”, said the chairman of the Fed
Chute du baril de Brent
Oil prices were falling on the prospect of further interest rate hikes which are pushing up the dollar, the currency in which barrels are sold, and might negatively affect global economic growth. The barrel of Brent from the North Sea for delivery in May lost 3.4%, to end at 83.29 dollars and the barrel of American West Texas Intermediate (WTI), for delivery in April, dropped 3.6%. , to close at $77.58.
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“Congress really needs to raise the debt ceiling”
The boss of the Fed also urged the elected representatives of Congress to raise the debt ceiling, in order to avoid the country defaulting on payment. “Congress really needs to raise the debt ceiling,” said Jerome Powell, stressing that “there was only one solution to this problem, and [que] it was Congress”.
It is, he added, “the only timely way out that allows us to pay all our bills”. In the absence of an agreement between Democrats and Republicans, the consequences are “difficult to estimate”, but “might be extremely negative and cause long-term damage”, he warned.
Jerome Powell, however, indicated that “these were really matters that concerned the executive branch and Congress”. “We do not seek to play a role in these political issues,” he added.
A technical measure, increasingly politicized
The debt of the United States reached, on January 19, 31,400 billion dollars, ie the ceiling beyond which the country can no longer issue new loans to finance itself and can therefore no longer honor its payments. Temporary emergency measures have been taken to continue to pay, but without an agreement in Congress to raise this ceiling, the United States will find itself in default, unable to meet its financial commitments.
This might happen as early as July, according to the estimate published in mid-February by the Congressional Budget Service (CBO), a politically independent agency responsible for providing Congress with budgetary and economic analyses.
Raising the debt ceiling is a priori a technical measure, but which requires the agreement of Congress. It is a chestnut of American political life, the stake of a bitter battle between Democrats and Republicans, with often nocturnal negotiations as the deadline approaches. Since 1960, the US debt ceiling has been raised 78 times, according to the Treasury Department. Republicans, now with a majority in the House of Representatives, oppose Democratic President Joe Biden, whom they accuse of spending recklessly.
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