The US Federal Reserve announced that it will raise key interest rates by half a percentage point, in the first step of this size since the year 2000, as part of its efforts to contain the highest inflation rate recorded in the country in four centuries, while its Chairman, Jerome Powell, stressed that the American economy is still strong despite the slowdown in growth. Stressing that this does not pose any risks of recession now.
After an increase of a quarter of a percentage point in March, the Federal Reserve decided to raise rates to between 0.75% and 1% in a step that falls within the framework of tightening its policy to calm the economy, indicating that other increases “may be appropriate,” according to the Monetary Policy Committee. The US Central Bank.
The committee also noted the “uncertain” impact of external factors, including the Russian invasion of Ukraine, which “puts additional pressure on inflation and is likely to affect economic activity.”
In addition, the statement clarified that the COVID-related shutdowns in China are “likely to exacerbate supply chain disruptions.”
Last March, the US Federal Reserve began cautiously raising these rates, with an increase of 0.25 percentage points, which was the first since 2018. And it had indicated its desire to approve six more increases this year, during six meetings by the end of 2022.
Since then, inflation has continued to rise, exacerbated by the war in Ukraine, and in March reached a peak not seen since December 1981: 8.5% in one year according to the CPI index approved by the Central Bank. American standard.
Federal Reserve Chairman Jerome Powell said Wednesday that the US central bank will move quickly to raise interest rates to contain rising inflation.
He stressed that the US economy is still strong despite the slowdown in growth, which he stressed does not pose any risks of recession at present.
“It’s a strong economy,” Powell said at a news conference. Nothing suggests that it is close to or at risk of stagnation,” referring to the possibility of adopting other increases.
He had announced before the central bank governors on the sidelines of the International Monetary Fund meetings that it was “very necessary” to stabilize prices and raise interest rates “quickly”.
The US central bank has two main tasks: ensuring price stability and eliminating unemployment.
In March, Jerome Powell estimated that the labor market was at an “unhealthy” level.
The unemployment rate is close to its pre-pandemic level (3.6% in March, compared to 3.5% in February 2020). But companies have been facing for months a shortage of manpower and mass resignations every month.
In order to attract job candidates and retain employees, companies increase wages, which leads to increased inflation.
stasis ghost
In addition to raising key interest rates, the Federal Reserve announced that it will start reducing its asset purchase policy from June 1.
This means that the Fed will not buy back the securities and will allow the bonds to become due, which will lead to an automatic reduction in the annual closing account.
The international context has changed since March. The Federal Reserve said in its statement that “general economic activity decreased slightly in the first quarter” in the United States. The country’s gross domestic product (GDP) declined by 1.4 percent in the first quarter of the year.
But he also considered that “household spending and fixed investment in businesses remained high.”
The US central bank added that “the creation of new jobs has been solid in recent months, and the unemployment rate has decreased significantly.”
For now, economists remain optimistic, saying that consumption is continuing despite inflation.
So far, Fed officials still believe they can return inflation to their 2% target.
They indicated earlier that they would not need to raise interest rates to more than 3%, so as not to impede demand. They say that this ratio is considered “neutral” and will not stimulate or slow economic growth.
Most experts now expect another, bolder increase of three-quarters of a percentage point at the June meeting, which would be the first since 1994.
The committee will be “attentive to inflation risks,” according to the Federal Reserve.
It is noteworthy that raising the interest rate by half a point was approved unanimously.
(AFP)
