Is the Fed winning the game, is the tightening of US monetary policy to reduce inflation bearing fruit? This is what could emerge from the latest data published across the Atlantic.
Retail sales thus fell in February in the United States, by 0.4% compared to January, according to data from the Commerce Department released on Wednesday March 15. This is certainly bad news for retailers, but it is the desired effect for fighting inflation as it eases pressure on prices in an overheated economy.
But be careful all the same.
“Retail sales fell in February, but not enough to signal a major deterioration in consumers’ propensity to spend,” notes, however, Oren Klachkin, chief economist for Oxford Economics.
Dark months ahead for American consumers
Over one year, sales are nevertheless up 5.4%. These figures are not adjusted for inflation, which therefore mechanically contributes to increasing the total amount of sales. However, this rose in February to 6% over one year, according to the CPI index which refers. For the same amount, consumers leave with a much less full basket.
The economist expects “Consumer spending will weaken later this year as wage increases ease, savings dwindle, borrowing costs rise and inflation remains high,” adds Oren Klachkin, painting a gloomy picture for consumers.
Until now, consumers have already seen their purchasing power reduced by high inflation, but have continued to consume. Because they had accumulated a lot of savings since the start of the Covid-19 pandemic and wages increased due to a shortage of labor in the country. The future may be different.
The Fed faces a dilemma
The American central bank (Fed) is in any case determined not to let prices continue to climb as much. It has therefore been raising its rates at a forced pace for the past year, which has made the cost of credit more expensive, thus weakening the ability to consume.
Its leaders will meet on March 21 and 22. They will be faced with a major dilemma: raise rates in the face of inflation that is still too high, or take a break, due to the uncertainty in the financial markets since the collapse of the Silicon Valley Bank (SVB), which precisely been pushed by these sharp rate increases.
Especially since wholesale prices in the United States, published on Wednesday by the Department of Labor and which measure inflation on the producer side, fell by 0.1% in February over one month, due in particular to the drop in gasoline prices. And over one year, the rise in prices has experienced its weakest evolution since March 2021, at 4.6%, against 5.7% in January.
“Producer prices are far from their peaks, but inflation is still high,” said Rubeela Farooqi, chief economist for HFE, who expects the Fed to hike rates next week by a quarter of a percentage point. However, it does not exclude the possibility of a pause in rate hikes, because “officials will take into account the risks to financial stability”.
Major turnaround in just one week
“If the markets remain as disorderly as they are now, the Fed will not raise rates next week,” anticipates for his part Kieran Clancy, economist for Pantheon Macroeconomics.
Still, the majority of market players expect an increase of a quarter of a percentage point (25 basis points), according to the assessment of CME Group. An increase which would then be identical to that announced on February 1 at the end of the previous meeting.
These expectations mark a quick and dramatic turnaround from last week, when they were expecting a half point rise (50 basis points). Fed Chairman Jerome Powell had just warned that inflation remained far too high, and that rates could rise more than expected. But in the meantime, the collapse of SVB and two smaller establishments, Signature Bank and Silvergate Bank, has shaken global finance. “Banking sector turmoil won’t prevent a Fed rate hike,” say Ryan Sweet and Oren Klachkin, economists for Oxford Economics. The institution can “use tools other than interest rates to ease pressures on the banking system”, they add.
(with AFP)
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