Washington (awp/afp) – A pause in the increases? Fed officials are meeting this week, and may, for the first time since March 2022, not raise the key rate to avoid triggering a recession, despite still high inflation.
“I think we’ll see a break next week,” EY economist Lydia Boussour told AFP, saying there’s “enough support” for that among members of the FOMC. , the decision-making body of the Fed.
This “would make it possible to observe more data before making decisions on the scale” of the increases still necessary, thus recently explained Philip Jefferson, one of the governors of the Fed, and future vice-president if the Senate confirms its nomination.
Since March 2022, the Fed’s key rate has been raised by 5 percentage points, to now stand in the range of 5.00 to 5.25%.
This leads banks to raise the cost of the loans they offer to households and businesses, in order to discourage consumption and investment, and ultimately to ease the pressure on prices.
After ten increases in a row, the officials of the powerful American Federal Reserve, who meet on Tuesday and Wednesday, now want to take the time to observe the effects on the real economy. And, above all, avoid causing a recession.
Especially since the spring banking crisis has made banks more cautious about loans, which acts as a rate hike.
As a result, more than two-thirds of market players are now planning a break, according to CME Group’s assessment.
The Fed’s decision will be announced Wednesday at 2:00 p.m. (6:00 p.m. GMT) in a statement. The president of the institution Jerome Powell will then hold a press conference.
New increase from July?
The debates within the committee promise to be, in any case, virulent: “it is unlikely that the vote in favor of a break will be unanimous with a few + hawks + (in favor of a more restrictive monetary policy, editor’s note) likely to disagree,” said Gregory Daco, chief economist for EY.
Because the American economy is holding up much better than expected, and is still showing itself to be too vigorous for prices to stop lastingly soaring.
Inflation is also rising again in April, according to the PCE index, favored by the Fed, to 4.4% over one year. And the release of another measure, the CPI, on Tuesday, the first day of the Fed’s meeting, could tip the scales one way or the other.
On the labor market, labor shortages persist, although the situation is improving.
Job creations in May were much stronger than expected, but the unemployment rate rose more than expected, to 3.7%. And weekly jobless claims were in early June at their highest since October 2021.
But a break wouldn’t mean the job was done. Fed officials, thus, “will send the message that this is not the end of the tightening cycle”, further underlines Lydia Boussour.
A new rate hike at the next meeting, at the end of July, is therefore “on the table”, according to her.
The monetary policy committee will also update its forecasts for growth in gross domestic product (GDP), unemployment and inflation.
And will say how far the rates could climb.
Diane Swonk, chief economist for KPMG, thus expects “that the Fed will revise its path of rising interest rates”, and anticipates “higher rates for even longer”.
afp/rp
2023-06-11 09:19:03
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