The main interest rate of the American central bank (Fed) is now in a range of 4.75 to 5.00%, the highest level since 2006, and the institution plans further hikes.
The Fed also warned in its press release that the recent banking crisis was “likely (…) to weigh on economic activity, hiring and inflation”. “The magnitude of these effects is uncertain,” she said. However, she reaffirmed that “the American banking system (was) solid and resilient”, and that its monetary policy committee “remains attentive to the risks of inflation”.
Federal Reserve officials mostly anticipate additional rate hikes in the coming months but refer more broadly in the statement to “additional policy firming actions,” without mentioning rates specifically.
The Fed also updated its economic forecasts on Wednesday, the last of which were published in December. It now anticipates inflation for 2023 at 3.6% once morest 3.5% previously, and for 2024 at 2.6% once morest 2.5%. Gross Domestic Product (GDP) growth forecasts have been revised down slightly, to 0.4% from 0.5% for 2023, and to 1.2% from 1.6% for 2024.
Difficult arbitration
The powerful Fed was faced with a difficult trade-off: continue to raise its main key rate to curb high inflation or take a break, in order to avoid aggravating the difficulties of the banks.
And expectations had been on a roller coaster in recent weeks, going from a sharp rise of half a percentage point following the Fed Chairman’s remarks on inflation, to zero when the crisis hit in a matter of days. banking.
The bankruptcies of US regional banks Silicon Valley Bank (SVB), Signature Bank and Silvergate have created a wave of concern. Governments, central banks and regulators intervened urgently to try to restore confidence, the best weapon to avoid contagion. But Credit Suisse, already in difficulty for years, paid the price.
find our main articles on the Credit Suisse crisis
After two rebound sessions at the start of the week, European stock markets moved around equilibrium on Wednesday and ended on a mixed trend. Wall Street cautiously started the session on Wednesday, before posting a slight decline.
“Pressure on banking sector securities seems to be easing following the actions of regulators to restore confidence”, commented on Tuesday Rubeela Farooqi, chief economist for HFE, who does not however rule out the risk of “fear of new bankruptcies and ‘a risk of contagion’.
164 billion loaned to American banks in a few days
The Fed loaned around $164 billion to US banks within days so that any customers who wanted to withdraw their money might do so, as well as $142.8 billion to the two entities created by US regulators to succeed SVB and Signature. Bank.
Contrary to the fight once morest inflation led by the Fed, these loans have increased its balance sheet by 297 billion dollars, which it had nevertheless been trying to reduce since June.
The American central bank was all the more under pressure as the fall of these banks was pushed by the hikes in the Fed’s rates, which climbed at a rate not seen since the beginning of the 1980s, during the episode of very high inflation experienced by the United States at the time.
And its European counterpart, the ECB, raised its rates by 0.50 percentage point on Thursday, ensuring that it would not compromise between price stability and financial stability.
Read also: In the banking turmoil, the ECB still raises its rates
Its president Christine Lagarde reiterated on Wednesday that the guardians of the euro still had “some way to go” to fight inflation, while warning that financial tensions “create new risks” for the economy.
In the United Kingdom, inflation rebounded in February to 10.4% year on year, driven by a further acceleration in food prices.
