The Federal Reserve (US central bank) will be on Tuesday and Wednesday; Faced with a difficult equation related to interest rates, and to what extent they should be raised during the current year to contain inflation without plunging the largest global economy into recession. Raising interest rates would control demand and slow price increases.
last March; The US Federal Reserve began to raise these rates cautiously, with an increase of 0.25 percentage point, which was the first since 2018.
At the conclusion of the two-day meeting, the Monetary Policy Committee is expected to approve a 0.50% increase this time.
Jerome Powell, the Federal Reserve Chairman, had personally announced that this increase “will be on the table.”
He said during a seminar for central bank governors on the sidelines of the International Monetary Fund meetings: It is “very necessary” to stabilize prices and raise interest rates “quickly”.
Some Federal Reserve officials went as far as stressing the need to adopt a gradual policy in the face of persistently rising inflation and a tense labor market. Some are calling for similar increases to be approved during the next meeting of the US Federal Reserve in June.
Action has become an urgent necessity, while inflation, exacerbated by the Ukrainian events, is at its highest level since the early eighties of the last century.
The PCE index, which is used by the Federal Reserve as a benchmark, showed a 6.6% increase in prices in March at an annual rate. As for the other CPI index, which adopts a different method of calculation, it showed that inflation reached 8.5%, the highest increase since December 1981.
tightrope
In parallel with the inflationary pressures fueled by the recent closures in China, which exacerbated the problems of global supply chains, growth is slowing down in the world.
The tools available to the US Federal Reserve are among the most effective to control demand and subsequently slow down the pace of inflation.
In addition to interest rates; The US central bank is expected to approve the start of reducing massive debt purchase plans, which is another major stage in the situation returning to normal.
Fed officials must strike a delicate balancing act by calming without reining in demand, because consumption remains the main driver of US growth. The US GDP declined by 1.4 percent during the first quarter of the current year 2022.
However, Gregory Dako, chief economist at EY Parthenon, believes that this does not entail a change in the direction of the US central bank, pointing to very strong domestic demand.
“Americans travel even though tickets are expensive, and they go to the movies and theaters while the restaurants are full,” he said during an interview with Agence France-Presse.
Like many economists, he expected the Federal Reserve to raise rates by half a percentage point at a meeting on Wednesday, and the next meeting in June.
While a recession is not considered imminent, some experts do not rule out that it will happen at the beginning of next year if prices remain high, despite the increase in interest rates.
“The Fed’s work is very complicated by difficult-to-understand internal economic conditions as well as the uneven global economic recovery framework,” said Gregory Baco.
Jerome Powell will certainly be asked during his regular press conference, which will be held after Wednesday, about the possible increases in interest rates that the Monetary Committee intends to approve during the current year.
Gregory Bacow stressed, “If the Fed really wants a soft landing,” in other words; tighten monetary policy without plunging the economy into recession; “It should indicate where the runway is located and when it is expected to be there, which is an essential element.”
But BNP Paribas economists consider it “unlikely that Jerome Powell will reveal a specific number” or the level of interest rates that the Federal Reserve aspires to during the current meeting. (AFP)