(Washington) The US Federal Reserve (Fed) started its first meeting of the year on Tuesday morning, after which another rate hike is expected, although less strong than the previous ones, as economic activity and the inflation show signs of slowing.
The meeting of the monetary policy committee (FOMC) “started at 10 a.m. as planned,” a spokesman for the American central bank told AFP. It will end Wednesday at midday.
The FOMC should raise, for the seventh time in a row, the rates, currently located in a range of 4.25 to 4.50%.
But after several unusually high hikes of half a percentage point and even three-quarters of a percentage point, the Fed is likely to return to a more usual hike of just a quarter of a point, or 25 basis points.
Raising the key rate in this way is “prudent given the slowdown in wage and price inflation and weak economic activity figures”, notes Steve Englander, head of US macro-economics for Standard Chartered and former economist at the Fed, in a note.
“Insofar as we were starting from rates close to zero in the spring, it was necessary to act quickly. […] It seems to me that it is now time to slow down the pace, without stopping it”, declared, on January 20, Christopher Waller, a governor of the Fed.
The decision will be announced in a press release at 2 p.m. Wednesday, and Fed Chairman Jerome Powell will hold a press conference 30 minutes later.
The effects of rate hikes are not immediate, they take months to be fully felt. These increases in turn drive up interest rates on loans, whether they be mortgages, car loans, or even consumer loans.
They reduce the purchasing power of households, which buy less, which eases the pressure on prices.
Inflation thus slowed in December to 5.0% over one year against 5.5% the previous month, according to the PCE index, favored by the Fed. However, it remains well above the 2% targeted by the monetary institution.
Another measure of inflation, the CPI index, on which pensions are indexed, also showed a sharp slowdown in December, to 6.5% over one year against 7.1%.
But, with consumption driving the US economy, too much tightening could lead to a recession.