“US Federal Reserve Interest Rates: Will they Rise Again at June Meeting?”

2023-05-22 17:43:00

Will the US central bank (Fed) raise rates for the 11th time in a row at its next meeting in June, or will it take a break? Jerome Powell, the president of the institution, had however assured it on Friday: “We have not made any decision as to the extent to which further strengthening of the policy would be appropriate”during a conversation in Washington with former President Ben Bernanke, who was in charge during the 2008 financial crisis.

Between hot and cold, to avoid panic on the markets, the US Federal Reserve might however well be forced to further increase its interest rates.

Over the remaining six months, they might still take 50 basis points, said Monday James Bullard, the president of the antenna of Saint-Louis. In other words, it might be two new increases, of 25 points by the end of the year.

The Federal Reserve has, since March 2022, raised its rates 10 times, at each meeting, taking them from a range of 0-0.25%, to 5.00-5.25%.

Between inflation and recession

“The risk with inflation is that it doesn’t turn around and come back down to lows”he said during a speech to the American Gas Association.

“With such a good job market, now is the perfect time to put this problem behind us and not relive (the situation) of the 1970s”, he added. The oil shock and the general rise in prices led to the Great Depression in the developed economies.

In addition, others consider, conversely, a risk of too much tightening which might trigger a recession. Fears that Jerome Powell does not fail to relay: “ as the policy has become more restrictive, the risks of doing too much versus doing too little are increasingly balanced”he estimated.

The next Fed meeting will be June 13 and 14.

After the rate hike of 25 basis points, decided at the beginning of the month, the American central bank had even hinted at a pause in the rise in the cost of credit.

Speaking on CNBC, Minneapolis Fed Chairman Neel Kashkari said Monday that he would hesitate between raising rates and taking a break next month. He added that inflation in services remained persistent and that the fed funds rate may need to be raised above 6% to bring inflation back towards the Fed’s 2% target.

“The important thing for me is to make it clear that we are not done (with the rise in rates) (…) if we skip June”he added.

(with agencies)