2023-08-25 14:10:55
(Washington) Stop or once more? Federal Reserve (Fed) Chairman Jerome Powell gave a first element of response during his opening speech at the Jackson Hole (Wyoming) meetings, which leaves the door open to further interest rate hikes. end of the year.
The high point of this high mass of central bankers, this speech was necessarily eagerly awaited by the markets, one month before the next meeting of the monetary policy committee (FOMC).
“Admittedly, inflation has slowed since its peak, but it remains too high. We are ready to raise interest rates further if necessary and intend to maintain a tight monetary policy until we are certain that inflation is on a sustainable path towards our target,” said Jerome Powell. .
But getting there might require “a period of below-potential growth, as well as an easing of labor market conditions,” insisted Powell, who warned that “any evidence of above-trend growth might block future progress on inflation and call for monetary tightening”.
For 18 months, the Fed has remained focused on its objective: to raise its rates rapidly in order to prevent expectations of persistently high inflation from taking root, with significant risks for the economy at stake.
PHOTO JONATHAN ERNST, ARCHIVES REUTERS
Since March 2022, the institution has increased its rates 11 times, to take them from a level close to zero to a range between 5.25% and 5.50%.
As a result, since March 2022, the institution has increased its rates eleven times, to take them from a level close to zero to a range between 5.25% and 5.50%.
Consequence or not, inflation has taken the opposite path, with first a peak in June 2022, around 9% then a constant decline since, to return to 3% last June, according to the PCE index. , the one favored by the Fed.
The 2% inflation target is now in sight, but all analysts agree that this last step might be the most difficult.
No consensus on a break
The President of the European Central Bank (ECB), Christine Lagarde, ended the day of discussion with a speech during which she recalled her institution’s desire to continue its restrictive policy.
According to Mme Lagarde, the current level of inflation implies “for the ECB to set interest rates at a sufficiently restrictive level for as long as necessary to bring inflation back to our target of 2% over the medium term”.
Starting a little later, the ECB raised its rates for the first time in mid-July 2022, to chain eight increases since then and bring them to 3.75%, a record since the spring of 2001.
But the situation in the euro zone remains more complicated, with inflation slowing down slowly, still standing at 5.3% in July, and a significant disparity between countries. The rise in prices fell back below the 2% target in Spain and Belgium but was still much higher in Germany and France, and even above 10% in Slovakia.
And end of July Mme Lagarde had judged that the economic outlook for the euro zone had “deteriorated”, in connection with the monetary tightening which was arousing growing criticism.
On both sides of the Atlantic, the possibility of a break is also being considered. On the Fed side, Jerome Powell insists on the need to rely on economic data as the target gets closer.
And opinions are varied among members of the Fed’s Monetary Committee (FOMC). Some, like Austan Goolsbee of the Chicago Fed office, consider that the essentials have been done. Others, like Michelle Bowman, one of the governors, call on the contrary for the continuation of the rise.
Despite a sharp and rapid rise in interest rates, the US economy remains resilient.
Enough to consider another rate hike in September on the Fed’s side? Not necessarily for the markets though, which are still 80% pricing in another break at the Sept. 20 meeting, according to CME Group data.
In any case enough to reassure the markets: shortly before the closing, Wall Street was moving resolutely in the green, following a hesitant session.
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