Fed Chairman Jerome Powell at the July 27 press conference in Washington (AFP/MANDEL NGAN)
Faced with inflation that is not slowing down in the United States, the American central bank (Fed) hit hard on Wednesday with a new sharp increase in its key rates in an attempt to curb inflation, while ensuring that it might avoid recession.
The Fed’s Monetary Committee (FOMC) raised its key rates by three-quarters of a percentage point, as markets expected. These rates are now between 2.25% and 2.50%.
“Inflation is way too high,” said Fed chief Jerome Powell, acknowledging that the latest inflation barometer of 9.1% in June, a new high for more than 40 years, “was even worse than expected” by Fed members.
The American central bank (Fed) has announced a fourth straight increase in its key rates and plans to continue this movement in the face of inflation which remains very high (AFP / Jim WATSON)
This is the fourth consecutive hike: a quarter point in March, half a point in May, and three quarter points in June – its biggest increase since 1994.
And “the monetary committee anticipates that further increases in key rates will be appropriate,” commented the Fed in a press release.
Mr Powell indicated that a further “unusually large” hike may be needed at the next currency meeting in September, and then “at some point it will be appropriate to slow down” the move.
The Fed usually operates in quarter-point hikes.
– Beginning of slowdown –
This new rate increase was decided unanimously by the twelve voting members. The Monetary Committee was complete, with no vacant seats, for the first time since 2013.
The objective of these rate hikes is to make credit more expensive in order to slow down consumption and investment and, ultimately, to ease the pressure on prices.
Wall Street saw this determination with a positive eye, and concluded in very sharp rise on Wednesday.
The dollar fell once morest major currencies.
“Recent spending and production indicators have slowed,” concedes the Fed, referring in particular to consumption, the locomotive of the American economy.
Evolution of the main FED key rate since 1985 (AFP / )
“However, job creations have remained robust in recent months, and the unemployment rate is still low,” also comments the FOMC, which claims to be “very attentive to the risks of inflation”.
The Fed hopes to pull off a “soft landing” but the economic slowdown needed to push prices down may prove too strong.
“We are not trying to cause a recession,” defended the boss of the Fed, ensuring that the United States was not currently in recession.
The evolution of the gross domestic product (GDP) in the second quarter will be published on Thursday. It might be very slightly positive, following a negative first quarter (-1.6%).
– No recession –
“We believe there is a path to lower inflation while supporting a strong job market,” he said, pressed by reporters to determine whether the GDP of the world’s largest economy was not. not on the verge of a contraction.
“Again I don’t think the US economy is in recession now,” added the official, however, highlighting “a slowdown in spending.”
“We may be seeing a slight change in the labor market, but it’s only the beginning,” he warned. The very low unemployment rate remained stable in June at 3.6% and job creations, which were still strong, slowed down.
Fed Chairman Jerome Powell in Washington on June 27, 2022 (AFP/MANDEL NGAN)
“Our goal (…) is to reduce inflation and achieve what is called + a soft landing + which means without a significant increase in unemployment,” said Mr. Powell.
The IMF, however, is less optimistic. “The current environment suggests that the possibility of the United States escaping recession is slim,” its chief economist, Pierre-Olivier Gourinchas, warned on Tuesday.
The institution has sharply lowered its growth forecast for the United States in 2022 and now only expects 2.3%.
Asked regarding the Fed’s initial slowness to react to rising prices, Mr. Powell defended himself: “The situation developed in a very unexpected way for all of us (…). I’m not sure that would have weighed whether we had raised rates sooner.”
“Many central banks raised rates three months before and it had no effect,” he said.