2023-09-17 09:25:13
“It is widely expected that the Fed will keep rates stable,” during the meeting of its monetary policy committee, the FOMC, according to a note from economists at Oxford Economics.
Rates are in the range of 5.25 to 5.50% following 11 increases since March 2022.
To decide, Fed officials will scrutinize the employment situation, consumption, manufacturing activity, and of course… the inflation figures, the slowdown of which has been their priority for almost two years.
However, this accelerated in August, for the second month in a row, to 3.7% over one year, following having slowed down for a year, according to the CPI index published on Wednesday.
But as “underlying inflation has performed better, we do not expect this data to have much impact” on the Fed’s decision, Oxford economists still believe.
Indeed, this measure, which excludes food and energy prices, continued to slow down in August.
“Modest” expenses
Fed Chairman Jerome Powell, however, might “take the opportunity to highlight the uncertain and bumpy path to disinflation,” commented Krishna Guha, economist for Evercore, an investment consulting firm.
Jerome Powell will hold his usual press conference on Wednesday following the release of the committee’s decision and updated economic forecasts. He should maintain a very cautious tone, leaving the door open to additional increases.
“The Fed has finished with its tightening cycle”, but its officials will be careful not to say so, in order to avoid “the markets integrating” this, Gregory Daco, chief economist for EY, told AFP.
The risk? See “financial conditions (relax) prematurely”, which might cause prices to rise once more.
On the employment side, the situation seems to be gradually rebalancing, following two years of labor shortage. The unemployment rate rose to 3.8% in August, due to an influx of new workers, which should help calm inflation.
The Fed is also closely interested in consumption, the engine of American economic growth. This has been vigorous since the start of the Covid crisis, fueling high inflation.
However, it is showing first signs of weakness, with “modest” spending this summer, according to the “Beige Book”, a survey carried out by the Fed.
Strike and shutdown
American households are reaching the end of the savings accumulated since the start of the pandemic. And, therefore, “rely more on borrowing to finance their expenses,” according to the Fed survey.
However, with successive rate increases, credit costs much more, forcing households to postpone certain purchases, or even give them up.
And as early as October, millions of Americans will start repaying their student loans once more, following a two and a half year break linked to Covid.
The unprecedented strike started on Friday by the powerful auto union, the UAW, might also weigh on growth. As is the specter of a “shutdown”, a paralysis of the federal administration, if Republicans and Democrats in Congress do not quickly agree on the government budget.
The Fed’s monetary policy committee will meet in full for the first time since February, following the departure of former vice-president Lael Brainard, who left to lead the White House team of economic advisers.
A Fed governor, Philip Jefferson, will succeed him, as recently confirmed by the Senate, which also validated the nomination of Adriana Kugler, United States representative to the World Bank, to the vacant seat of governor, becoming the first Fed official of Hispanic origin.
On the other side of the Atlantic, the European Central Bank (ECB) raised its rates by 0.25 points on Thursday to bring it to 4.0%, its highest level since 1999, but this might be the last rise. Although growth has slowed in the eurozone, inflation was still 5.3% in August.
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