2023-09-29 13:53:00
This is news that might weigh on the upcoming decisions of the American Federal Reserve (Fed). Responsible for maintaining inflation at the set target of 2%, the monetary institution might take a dim view of its acceleration in August. It thus increased, in August, to 3.5% over one year, according to the PCE index published this Friday, September 29 by the Department of Commerce. Over one month alone, the price increase is 0.4%, as expected, compared to 0.2% in July.
The reason is the rise in gasoline prices at the pump. This is evidenced by the underlying inflation figure, that is to say excluding volatile energy and food prices, which slowed to 3.9% over one year compared to 4.3% in July. .
Fed: no rate hike in sight in the United States
Furthermore, American household spending also slowed last month, growing by 0.4%, following a rebound of 0.9% in July. Their income started to rise once more, +0.4% compared to +0.2%.
Eleven rate increases since March 2022
It remains to be seen how these results will be received by the Fed. Especially since PCE inflation is the one that the American central bank particularly looks at. The indicator is published later in the month than another index, the CPI, which refers to and on which pensions are indexed. These two measures moved in the same direction in August, as the CPI index also experienced a second month of increase, at 3.7% year-on-year, with a slowdown in underlying inflation.
Since March 2022, the central bank has pursued one of its most restrictive monetary policies: rates have increased eleven times, a very rapid pace. Objective, slow down consumer demand and business investment in order to break the inflationary spiral.
Last week, it nevertheless announced that it would maintain its key interest rates in the range of 5.25% to 5.5%, at their highest level in 22 years. However, this is not the end of the cycle, with central bank officials anticipating an additional increase by the end of 2023. Rates should then fall less quickly than expected, now expected at 5.1% in 2024, compared to 4.6% anticipated in their previous forecasts published in June.
Rates: the Fed ready to strike once more by the end of the year
Solidity of the American economy
The Fed might therefore continue to fight its fight once morest inflation. And this, given the good performance of American economic activity. The central bank has, in fact, doubled its forecast for growth in the United States in 2023 to 2.1%, compared to 1% forecast in June. “The economy is growing at a solid pace,” underlined the institution at the end of its meeting of its Federal Open Market Committee (FMOC), which took its status quo decision ” unanimously “.
“Rates will remain restrictive until we are confident that inflation is slowing towards 2%,” warned Jerome Powell, who specified that this might take time.
However, there are indeed signs of a slowdown in activity, particularly in construction. In addition, household morale is at its lowest, once morest a backdrop of strikes in the automobile sector and the resumption of repayment of student loans.
High rates in 2024
Consequently, the rate forecasts of “ fed funds » (known as the “dot plot”) were revised upwards, with rates at 5.1% in 2024, compared to 4.6% for the estimates published last June. This means that the Fed’s key rates should peak between 5.5% and 5.75% – thus suggesting an upcoming increase of 25 basis points – but also that the Fed expects fewer rate cuts for 2024 (and 2025 for that matter).
(With AFP)
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