The Fed stops pulling out heavy artillery to fight inflation. After four strong rate hikes (by 0.75 percentage points), the US Federal Reserve announced an increase of half a point on Wednesday. Admittedly a more modest increase, but which nevertheless remains strong and unprecedented over the last decade since they have reached their highest level since 2007 at 4.25 or 4.50%. Its officials even plan to make them climb beyond 5.00%, whereas they anticipated 4.6% in the previous forecasts, published in September. Because, if inflation has shown a “welcome slowdown” (7.1% against 7.7% in October) in the words of Jerome Powell, the President of the Fed, the latter believes that “it will take significantly more evidence to be confident that inflation is indeed on an easing trend.
No recession mentioned
The American Central Bank now expects inflation to be 3.1% in 2023, against 2.8% previously and wants to bring it back to around 2%. For 2022, it expects 5.6%, against 5.4% three months ago. The Fed has also drastically reduced its growth forecast for 2023, now expecting 0.5% against 1.2% previously. However, it raised it a little for this year, also to 0.5%, against 0.2% previously.
The institution does not mention a recession for next year, despite the risks caused by its fight against inflation, which could slow down economic activity too much.
“I don’t think anyone knows whether or not there will be a recession” in the United States, underlined Jerome Powell.
As for the unemployment rate, currently 3.7%, the Fed sees it rising to 4.6% in 2023 and 2024, a little higher than the 4.4% it previously forecast, which “remains very solid “, further commented the President of the Fed.
Employers should still have difficulties in the near future to hire, because the country faces according to him a “shortage of structural manpower”, with “4 million people who are missing”, due, he said. he explained, early retirement, the million and a half deaths from Covid, and insufficient immigration A phenomenon that forces companies to raise salaries to attract candidates and retain their staff.
“I don’t think we’re in a price-wage spiral,” Treasury Secretary Janet Yellen told reporters last week.
The easing of monetary policy should continue at the beginning of the year. The market is pricing in a quarter-point increase at the Fed’s meeting in February, interest rate futures showed Tuesday.
ECB meeting Thursday
On the European side, the European Central Bank (ECB) is also holding a monetary policy review meeting on Thursday, in a different context. The ECB is already expected to raise rates again at the December meeting. But, observers say, probably less in magnitude than the 0.75% increases in September and October.
And this because there is currently no slowdown in inflation. For Christine Lagarde, the peak has not yet passed. In the immediate future “my best economists (within the ECB)” still see the risk of inflation ” rising “ she said last week. In this context, interest rates “are and will remain the main tool in the fight against inflation”.
The director of the Banque de France François Villeroy de Galhau also calls that at the meeting of the ECB “from December 15, we should complete the first half, normalization” monetary policy after several years of exceptionally low rates, close to zero or even negative since 2016.
“We will discuss around Christine Lagarde (Editor’s note: the President of the ECB) and I think the right measure would be to raise interest rates to around 2%, a more normal rate in view of past levels”, he said on December 4.
(with agencies)