Fed Chairman Jerome Powell during a press conference in Washington, March 22, 2023 (AFP / OLIVIER DOULIERY)
The US central bank (Fed) raised its rate by a quarter of a percentage point on Wednesday and sought to balance its fight once morest inflation once morest the turmoil in the banking sector which it warned might “weigh” on the economy.
The Fed’s main policy rate is now in a range of 4.75-5.00%, the highest level since 2006, following a unanimous decision.
The powerful institution faced a difficult arbitration. It finally opted for the compromise, between the sharp rise in rates that it anticipated two weeks ago in the face of high inflation, and a break, in order to avoid aggravating the difficulties of the banks.
“We considered ‘pausing’ in the days leading up to the meeting,” Fed Chairman Jerome Powell said during his press conference on Wednesday.
But inflation, which is not falling enough and the job market, which is still tight, have finally convinced Fed officials to tighten the screw further. Not as strong though as they previously anticipated.
“The events of the past two weeks should lead to some tightening of credit conditions for households and businesses and thus weigh on demand, the labor market and inflation,” explained Jerome Powell.
“You can think of it as the equivalent of a rate hike,” he added.
– “Strengthen supervision and regulation” –
And for the future, the majority of the 18 Fed officials – governors and presidents of regional offices – anticipate an additional increase of a quarter of a point in rates. Only one of them considers it appropriate to stop there, while seven others are in favor, conversely, of going even higher.
The US central bank also updated its economic forecasts on Wednesday, the previous ones dating back to December. It now anticipates inflation for 2023 at 3.6%, once morest 3.5% previously, and for 2024 at 2.6%, once morest 2.5%.
Gross domestic product (GDP) growth forecasts have been revised down slightly, to 0.4% from 0.5% for 2023, and to 1.2% from 1.6% for 2024.
The recent bankruptcies of US regional banks Silicon Valley Bank (SVB), Signature Bank and Silvergate have created a wave of concern. Governments, central banks and regulators intervened urgently to try to restore confidence, the best weapon to avoid contagion.
Evolution of the US Federal Reserve key rate ( AFP / )
“We must strengthen the supervision and regulation” of banks, conceded Mr. Powell, who recalled that an investigation by regulators is underway and who showed himself in favor of the conduct of an independent investigation.
US Treasury Secretary Janet Yellen, for her part, assured a Senate committee that “the US banking system was solid”.
– Wall Street in the red –
After two rebound sessions at the start of the week, European stock markets moved around equilibrium on Wednesday and ended on a mixed trend. Wall Street, however, suddenly let go of the ballast at the end of the session, following the Fed.
The dollar, for its part, lost more than 1% once morest the euro, with currency traders interpreting the Fed’s communication as a sign of easing.
Evolution of European Central Bank (ECB) interest rates since 1999 (AFP/)
The Fed lent regarding $164 billion to US banks within days, so that any customers who wanted to withdraw their money might do so, as well as $142.8 billion to the two entities created by US regulators to succeed SVB and Signature Bank.
Contrary to the fight once morest inflation led by the Fed, these loans have increased its balance sheet by 297 billion dollars, which it had nevertheless been trying to reduce since June.
The American central bank was all the more under pressure as the fall of these banks was pushed by increases in its rates, which climbed at an unprecedented rate since the beginning of the 1980s, during the episode of very high inflation. then experienced by the United States.
And its European counterpart, the ECB, last week raised its rates by 0.50 percentage points, assuring that it would not compromise between price stability and financial stability.
Thursday, new decisions are expected, including those of the Bank of England and the Swiss National Bank, which had granted liquidity to Credit Suisse, just before it was bought by UBS.
