One of the officials of the American central bank (Fed) showed itself on Thursday in favor of a continuation of the increase in the key rate of the institution, despite the banking crisis which is tightening credit conditions, the priority according to him being to make lower inflation.
We have tools to lower demand by raising interest rates to restore economic balance. So we have to do itMinneapolis Fed President Neel Kashkari told affordable housing officials in Minnesota.
On March 22, at the end of its last meeting, the Fed raised its rates by a quarter of a point. A modest increase compromise between the fight against inflation and the fear of aggravating the banking crisis began less than two weeks earlier, with the bankruptcy of the American bank SVB.
Fed Chairman Jerome Powell noted at the time that tensions in the banking sector were leading a tightening of credit conditions, making it more expensive and harder to obtain. And that, he pointed out, acts like a hike in the policy rate.
Encourage Americans to consume less
Rate increases, in effect, make credit more expensive, whether it is to buy a car, a house, or simply to use your credit card. This aims to encourage Americans to consume less and allow price pressure to ease.
What is not clear for the moment is to what extent the banking tensions of the last few weeks lead to a lasting tightening of credit, which would then slow down the American economy, however noted Neel Kahkari. And the full effects of Fed rate hikes take time to be felt throughout the economythe estimates range from six months to a year or two, further indicated the president of the Minneapolis Fed.
He said he was concerned about the still high inflation in non-housing services, which showed no signs of abating, and where wage growth continues to grow faster than is consistent with (the) Fed’s 2% inflation target. We know we have to reduce inflation. And we will, he assured.
PCE inflation, favored by the Fed and which it wants to bring down to 2%, will be published on Friday for the month of February. It should have slowed down over one year, 5.1% against 5.4%, according to Cleveland Fed forecasts.
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