2023-05-03 18:20:20
The main Fed rate is now in a range of 5.00 to 5.25%, the highest since 2006, a decision taken unanimously, the institution announced in a press release published after the meeting of its monetary policy committee (FOMC).
Many market players are now waiting for a break in these rate hikes, which increase the cost of credit for households and businesses, and, by slowing down economic activity, should make it possible to ease the pressure on prices.
Although a pause in the hikes was not formally considered at that meeting, according to Powell, he pointed out that the language of the statement had changed in tone. The Fed no longer indicates that it anticipates additional increases: “we removed this part. It is” a significant change, “said Jerome Powell.
Fed officials say they will observe the effects of successive decisions, and the delay with which they affect the real economy, but also “economic and financial developments”, to decide whether or not to tighten further , in order to bring inflation back to 2.00%, its target.
The Fed boss ruled that the Fed’s monetary policy is now “restrictive”, that is to say that it prevents economic activity from continuing to overheat.
However, “no decision on a break has been taken today,” he warned. Support for a quarter-percentage-point hike “was very strong in the committee,” he pointed out, “people talked about a break, but not so much for this meeting.”
And no rate cut is expected before the end of the year because inflation “is not going to come down quickly,” Powell said.
Convera Financial Services analyst Joe Manimbo said: “The Fed’s statement gives policymakers complete flexibility to suspend rate hikes or pursue others, depending on inflation developments and the risks facing the Fed. economy is facing, such as the continued instability of some regional banks”.
Signs of shortness of breath
The banking crisis provided unexpected support to the Fed’s fight against inflation: “the tightening of credit conditions for households and businesses is likely to weigh on economic activity, hiring, and inflation “, warns the Fed in its press release, hammering that “the American banking system is solid and resilient”.
And, while it was still resisting, the American economy is multiplying the signs of slowing down, long awaited and finally visible.
First quarter growth was 0.3% from the last three months of 2022 and just 1.1% annualized. And the probability of a recession is widely anticipated by the markets.
“The possibility of escaping a recession is from my point of view more likely than that of having a recession”, however assured Jerome Powell.
The fragility of certain banking establishments came back to the fore with the fall of the regional bank First Republic, finally bought over the weekend by JPMorgan Chase, the number one in the sector.
Concern about the solidity of these medium-sized banks remains strong, several of them were still falling slightly on Wall Street after falling sharply the day before.
While price trends fell sharply in March, core inflation (excluding food and energy prices) barely slowed and is now higher than inflation itself.
Jerome Powell has been repeating it for months, bringing US inflation back to its 2% target will be a long and difficult but necessary effort because long-term inflation would have even more harmful consequences for the economy, according to him.
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