Washington (awp/afp) – The American central bank (Fed) raised its rate by a quarter of a percentage point on Wednesday, in search of a balance between its fight against inflation and the turbulence in the banking sector which, she warned, could “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, and the institution is planning further hikes.
The Fed also warned in a statement that the recent banking crisis was “likely (…) to weigh on economic activity, hiring and inflation”. “The magnitude of these effects is uncertain,” she said.
But savers’ money is “safe” and the banking system remains sound, assured Fed Chairman Jerome Powell at a press conference, who stressed that the institution is “committed to learning the lessons of the episode”.
Fed officials largely anticipate additional rate hikes in the coming months, but refer more broadly in the statement to “additional policy firming actions,” without mentioning rates specifically.
Despite the difficulties, the possibility of a soft landing for the US economy “still exists,” Powell added, saying the Fed is “trying to find” the right path.
Difficult arbitration ___
The US central bank also updated its economic forecasts on Wednesday, the last of which were published in December. It now anticipates inflation for 2023 at 3.6%, against 3.5% previously, and for 2024 at 2.6%, against 2.5%.
Forecasts in terms of gross domestic product (GDP) growth have been revised down slightly, to 0.4% from 0.5% for 2023, and to 1.2% from 1.6% for 2024.
The powerful Fed was faced with a difficult arbitration: to continue raising its main key rate to curb high inflation or to take a break, in order to avoid aggravating the difficulties of the banks, anticipations showing the hesitations of the market on the subject .
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.
“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 assured a Senate committee on Wednesday that “the US banking system was sound”. “Recent actions by the federal government have demonstrated our strong commitment to taking the necessary steps to ensure the safety of depositors’ savings,” she added.
“It is important to be clear: the shareholders and creditors of failing banks are not protected by the government. And no loss (…) will be borne by the taxpayer”, also underlined the Minister of the Economy and Finance by Joe Biden.
Fear of contagion ___
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 was down slightly after the start of the Fed Chairman’s press conference.
The dollar, for its part, lost more than 1% against the euro, with currency traders interpreting the Fed’s communication as a sign of easing.
The Fed lent about $164 billion to US banks within days, so that any customers who wanted to withdraw their money could 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 against 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.
In the United Kingdom, inflation rebounded in February to 10.4% year on year, driven by a further acceleration in food prices.
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