The Fed’s main key rate could continue to rise above 5.1%.
By Le Figaro with AFP
Published
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The Fed’s main key rate, which has been climbing for a year to curb inflation, could continue to climb beyond 5.1%, the level at which officials at the institution have seen it stop until now. warned its president Jérôme Powell on Tuesday.
«The latest economic data is stronger than expected, suggesting that the final level of interest rates is likely to be higher than expected“, declared the chairman of the Fed before a committee of the Senate. Fed officials released their latest forecasts in December, and will update them on March 21-22, at their next meeting.
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After several very strong rate hikes, the Fed had raised them at a slower pace, even returning, on February 1 after its last meeting, to the usual rate of increases of a quarter of a percentage point. But the tide could again be reversed, warned “Jay» Powell: «if all the data were to indicate that more rapid tightening is warranted, we would be prepared to accelerate the pace of rate hikes». «Although inflation has moderated in recent months, the process of reducing inflation to 2% will be long and likely bumpy.”, further indicated the head of the powerful American Federal Reserve.
Inflation, at the heart of the Fed’s discussions
To combat high inflation in the United States, the Fed has been raising rates for the past year from the 0 to 0.25% range they were in during the pandemic, to support the economy through consumption, at, now, 4.5-4.75%. Raising rates increases the cost of credit for households and businesses, and must therefore curb consumption, to ease the pressure on prices. But despite these efforts, consumption remained solid, and inflation even rose again in January, to 5.4% over one year, according to the PCE index, favored by the Fed, and which it wants to bring back around 2%.
Another measure of inflation, the CPI index, which is a benchmark and on which pensions are indexed, for its part showed a slight slowdown, to 6.4% over one year, against 6.5% in December, accelerating however over one month for the first time since September, to 0.5% against 0.1%. This should also weigh on employment, but the unemployment rate was, in January, at its lowest for more than 50 years, at 3.4%. One of the governors of the Fed, Christopher Waller, had indicated Thursday that he would support a hike in the key rate to beyond 5.4% in the coming months, if inflation does not slow more quickly, and the labor market remains tight.
The New York Stock Exchange sank into the red on Tuesday after these Fed announcements. Around 3:05 p.m. GMT, a few minutes after the publication of the remarks that Jérôme Powell must make before a Senate committee, the Dow Jones fell by 0.48%, the Nasdaq by 0.69% and the S&P 500 by 0.67%.
