WASHINGTON (Archyde.com) – The U.S. Federal Reserve (Fed) raised its main interest rate by three-quarters of a point on Wednesday in a bid to rein in inflation, but suggested future increases in the cost of credit might come at a cost. slower pace in order to take into account the “cumulative tightening of (its) monetary policy”.
The evolution of the wording of the press release, published following two days of debate, takes into account the ever-evolving impact of the rapid rise in the Fed rate and the desire to bring the federal funds rate to a level “sufficiently restrictive to bring inflation back to 2% over time”.
The “increases” in the rate target “will be appropriate,” the Fed said. “In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the time lags with which monetary policy affects economic activity and inflation, and economic and financial developments “, she added.
The Fed’s change in vocabulary bears witness to the broad debate that has taken place on the impact of the tightening of monetary policy on the economy and the risk that sharp rate hikes will weaken the financial system or trigger a recession.
While its recent rate hikes of 75 basis points were decided in the name of the need to act “quickly” to stem inflation, which is more than three times the Fed’s 2% target, the bank now enters a more nuanced phase.
The rate target for federal funds (“fed funds”), the Fed’s main monetary policy instrument, is raised to between 3.75% and 4%, the highest level since early 2008.
The central bank has raised its rate in the past six meetings, making its fastest rise since the Paul Volcker era in the 1970s and 1980s.
Members of the Federal Open Market Committee (FOMC), the Fed’s monetary policy committee, remain “very attentive to inflationary risks”, the Fed added.
She pointed out that the economy appeared to be growing at a moderate pace, with job creation still “solid” and a low unemployment rate.
On the financial markets, the Wall Street indices were up, the Standard & Poor’s 500 taking 0.51% while it yielded 0.3% shortly before these announcements.
At the same time, the yield on ten-year Treasury bills lost 4.5 basis points to 4.007% and the dollar dropped 0.69% once morest a basket of benchmark currencies.
The president of the institution, Jerome Powell, must comment on the committee’s decision, taken unanimously, during a press conference from 6:30 p.m. GMT.
(Report Howard Schneider, French version Laetitia Volga, said by Camille Raynaud)
by Howard Schneider and Ann Saphir
