2023-05-03 18:17:35
The U.S. central bank on Wednesday raised its main policy rate for the tenth time in a row since March 2022, by a quarter of a percentage point, determined to curb inflation despite signs of a slowing economy and despite of the recent banking crisis.
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 following 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.
Fed officials, in the statement, appear less firm on future rate hikes than in previous meetings. They specify that they will observe the effects of the successive decisions, and the delay with which they have an effect on the real economy, but also the “economic and financial developments”, to decide on the need or not to tighten further, in order to bring back inflation at 2.00%.
This marks a change in tone from previous meetings, when they anticipated the need to continue raising rates.
The banking crisis provided unexpected support to the Fed’s fight once morest inflation: “the tightening of credit conditions for households and businesses is likely to weigh on economic activity, hiring, and inflation “, underlines 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.
Last week, first-quarter growth came in at 0.3% from the last three months of 2022 and just 1.1% annualized. And the probability of a recession, more marked than initially expected, is widely anticipated by the markets.
“Our data lead us to believe that the monetary tightening and the recent tensions in the banking system will lead to a slight recession, however stronger than what we had anticipated so far”, underlined the chief economist of Oxford Economics. , Ryan Sweet, interviewed by AFP.
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.
The concern regarding the solidity of these medium-sized banks remains strong, several of them saw their title fall on Wall Street on Tuesday.
“Fear is a very powerful feeling on Wall Street. When he walks in the door, the logic goes out the window,” commented Adam Sarhan of 50 Park Investments.
“The Fed needs to view ‘these banking difficulties’ as a game-changing event,” argued LBBW’s Karl Haeling, and no longer view banks as bearing the brunt of “isolated cases of mismanagement.”
Because these banks are suffering in particular from the rise in rates, which set the day-to-day cost of the money that institutions lend to each other. It has gone in just over a year from a range between 0 and 0.25% to values between 4.75 and 5% now.
However, while inflation 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 target of 2% 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. .
Between May and December, the Fed had, in the face of persistent inflation, raised its rates at a pace not seen since the beginning of the 1980s, opting for two unusual hikes of half a point, and even, on four occasions, of three – quarter points.
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