Washington (AFP) – The labor market finds a balance in the United States, inflation picks up but moderately: these two ingredients lead the market to expect that the Federal Reserve will keep its reference interest rates unchanged at its meeting this week.
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The consensus is “broad” on the outcome of the meeting of the Monetary Policy Committee (FOMC) of the Fed, the US central bank, which will meet Tuesday and Wednesday, according to Oxford Economics.
Rates are currently in a range of 5.25-5.50% after 11 successive increases with which the entity sought to contain inflation.
Raising rates means making credit more expensive and discouraging consumption and investment, which puts upward pressure on prices.
In August, inflation rose for the second consecutive month to reach 3.7% in 12 months, according to the CPI published on Wednesday.
But since “core inflation (ndlr, which excludes more volatile prices such as energy and food) has performed better, we do not expect this data to have much impact” on the Fed’s decision, Oxford noted.
“Modest” expenses
Federal Reserve Chairman Jerome Powell will hold his usual press conference on Wednesday after releasing the committee’s decision and his updated economic forecasts. He is expected to keep the door open to further rate increases.
“The Fed has already finished its adjustment cycle,” but its managers will be careful to state this to prevent “the markets from integrating” this idea and taking it for granted, Gregory Daco, chief economist at EY, explained to AFP.
There is a risk that financial conditions will ease “prematurely,” which could push prices up again, Daco estimated.
In terms of employment, a market closely watched by the Fed, the situation seems to be balanced after two years of labor shortages. The unemployment rate came out of the historical low and stood at 3.8% in August, thanks to new workers in the market. That should help moderate inflation.
In addition, consumption, the engine of the economy, shows some signs of weakness, with “modest” spending in the summer, according to the “Beige Book,” a survey conducted by the Fed.
American families are extinguishing their savings accumulated during the pandemic and therefore rely “more on credit to finance their expenses,” according to the Fed.
Credit costs more and that leads to deferring some purchases or simply discarding them.
Furthermore, in October millions of Americans will return to repay their student loans after a two and a half year pause due to Covid.
The European Central Bank (ECB) raised its interest rates by 25 basis points on Thursday to leave it at 4%, a maximum since 1999.
© 2023 AFP
2023-09-17 12:08:53
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