Washington (awp/afp) – The American central bank (Fed) wants, to counter inflation, to raise its key rates this year for the first time in almost two years and will reveal its timetable on Wednesday, which could tumble the stock market .
The meeting of the monetary policy committee (FOMC), started Tuesday morning, will end Wednesday noon. A press release will be issued at 2:00 p.m. (8:00 p.m. in Switzerland) and Fed Chairman Jerome Powell will hold a press conference at 2:30 p.m. (8:30 p.m.).
The powerful Federal Reserve could, at the end of these two days of discussions, announce that rates will begin to be raised in March, at the next meeting.
Key rates had been lowered within a range of 0 to 0.25% in March 2020, in the face of the Covid-19 pandemic, to support the economy through consumption.
Officials at the monetary institution will also say whether they fall 25 basis points or directly 50 points, pushing overnight rates to a range of 0.25 to 0.50%, or 0.50 at 0.75%. They should also specify how many increases they envisage for 2022 and how far they will raise these rates.
“We still expect two key rate hikes in the first half of 2022 and none in the second half, as inflation fears should ease,” said Steve Englander and John Davies, economists for Standard Chartered Bank, in a note.
“But until inflation noticeably slows, there is a risk that the Fed will say and do more, rather than less,” they warn.
Slow down demand
The Fed had groomed the ground at its previous meeting in mid-December, announcing that it would end its asset purchases earlier than expected, starting in March instead of June.
It had also, for the first time, stopped qualifying as “temporary” this inflation which has been, for months, well above its long-term objective of 2%.
Prices have climbed 7% in 2021, their fastest pace since 1982, according to the CPI index. The Fed favors another indicator of inflation, the PCE index, whose data for 2021 will be published on Friday.
Raising overnight interest rates should temper inflation by slowing strong demand.
These federal funds rates determine the cost of money that banks lend to each other, and raising them therefore makes credit more expensive. However, if credit is more expensive, individuals and businesses consume or invest less.
The Fed had so far been cautious about increases, fearing that this would slow down the economic recovery too abruptly and, by extension, the job market.
But the country has now almost returned to full employment, with the unemployment rate falling in December to 3.9%, close to its pre-crisis level (3.5%), with a labor shortage work that places employees in a position of strength in relation to employers.
Debt of emerging countries
The risk now comes from the stock market, and the measure, although expected, raises fears of a correction. European markets unscrewed on Monday, Wall Street plunged to the lowest in months.
The scale of the fall could even push the Fed to slow down the movement, warns economist Joel Naroff: “If the stock markets continue to weaken, (…) I do not know what the (currency committee) will do when of the meeting of March 15 and 16”.
“I was expecting a show of strength, with 50 basis points in March, but that might be off the mark,” he said.
Rising rates too quickly could also penalize emerging and developing countries, whose debt is denominated in dollars, warned the International Monetary Fund (IMF).
“It’s going to be a challenge for central bankers this year to be able to communicate the transition to tighter monetary policy. And they have to handle that carefully,” IMF chief economist Gita told AFP. Gopinath.
She also said she doubted that inflation would drop to 2%, the Fed’s target, by the end of 2022, as Treasury Secretary Janet Yellen notably anticipates.
The IMF has revised down its growth forecast for the United States, expecting 4.0% for 2022, against 5.2% previously expected.
afp / jh
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