Determined to fight against inflation still strong, the US Federal Reserve (Fed) announced Wednesday a new sharp increase in its rates, three quarters of a percentage point. She warned that she now anticipates near-zero growth in 2022.
The Fed’s main policy rate is now in a range of 3.00 to 3.25%, the central bank said in a statement. This is the third time in a row that the Fed has made a hike of this magnitude, after a more usual first hike of a quarter point in March and a hike of half a point in May.
And it anticipates that additional increases will be necessary in 2022, it is indicated in the press release, until raising the key rate by another percentage point.
Release the pressure
Jerome Powell, chairman of the monetary policy committee (FOMC), held a press conference on Wednesday. [Jim Lo Scalzo – Keystone]Raising the key rate increases the interest rates of 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 risen since the beginning of the year. They have just exceeded 6% for a 30-year loan, for the first time since 2008. This is lowering sales in this sector which had shown insolent good health since the start of the coronavirus pandemic.
The meeting of the Monetary Policy Committee (FOMC), the decision-making body of the Fed, began on Tuesday. The president of the institution, Jerome Powell held a press conference at 2:30 p.m. (8:30 p.m. in Switzerland).
Slowdown in inflation in 2023
The Fed took the opportunity to update its economic forecasts. It now anticipates almost zero GDP growth in 2022, when it forecast, in June, +1.7%. She sees it then rebound to 1.2% in 2023, less strong, however, than the 1.7% growth she expected 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 inflation, according to the PCE index, before slowing sharply in 2023, to 2.8% (compared to 2.6% previously).
The Fed favors this inflation index, which stood at 6.3% over one year in July according to the most recent figure available, over the CPI index, which is a reference for the indexation of pensions in particular. It certainly slowed down in August in the United States, thanks to the fall in gasoline prices, but, at 8.3% over one year in August, showed still very strong pressure on prices, with a generalized inflation.
>> Watch the 12:30 p.m. show “In the United States, inflation is at record levels”:
Small rise in unemployment
But this deliberate slowdown in the economy is very tricky, because too much of a brake could tip the United States into recession, which is already hovering over the entire global economy. The excellent health of the job market gives the Fed leeway to act aggressively.
The current unemployment rate is one of the lowest in 50 years and there are not enough workers to fill all the vacancies. The unemployment rate, now at 3.7%, is expected to increase very slightly under the effect of the rate hike, to 3.8% in 2022, close to the 3.7% previously expected, before reaching 4 .4% in 2023 (against 3.9% expected in June).
>> In Switzerland: Historically low unemployment posts its third month of stability
The Fed has hammered it: the fight against inflation is its priority. Letting it take hold would imply even more painful measures for households and businesses, as was the case 40 years ago, after years of soaring prices, sometimes approaching 15%.
The US central bank, like its counterparts around the world, is trying to rein in inflation caused by supply chain disruptions linked to Covid-19, and exacerbated by rising energy and food prices with the war in Ukraine.
>> The full press conference:
ats/rad