The tightening of US monetary policy does not seem to be stopping anytime soon. Before a committee in the Senate, the chairman of the Fed, Jerome Powell, indeed made it known that the rise in rates will continue, and this, above the levels initially anticipated, at 5.1%, by the persons in charge of the US Federal Reserve.
« The latest economic data is stronger than expected, suggesting that the final level of interest rates is likely to be higher than expected “, underlined the chairman of the Fed.
The gross domestic product (GDP) of the United States recorded growth of 2.1% for the whole of 2022, the Commerce Department announced Thursday. The job market, meanwhile, remains solid, with an unemployment rate of 3.5% in December, still one of the lowest in 50 years.
Resilient inflation
After several very large rate hikes, the Fed had raised them at a slower pace. On February 1, at the end of its last meeting, it had even decided to return to the usual rate of increase by a quarter of a percentage point, the rates now being in the range of 4.5 to 4.75%.
Despite these efforts, consumption remained solid. 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 to around 2%.
Thus, the tide could again be reversed, warned “Jay” Powell, “ whether all the data would indicate that a faster tightening is warranted ».
« 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.
An increase of 50 basis points anticipated by some analysts
These statements panicked Wall Street, which suddenly sank into the red after these statements. Around 3:40 p.m. GMT, the Dow Jones fell by 0.47%, the Nasdaq by 0.29% and the S&P 500 by 0.55%. In the wake of these comments, the US 2-year bond rate jumped to its highest level since 2007, at 4.97%. The 10-year rate also tightened, briefly going back above the 4% threshold.
Jerome Powell « was very aggressive, probably more than expected by observers said Peter Cardillo of Spartan Capital Securities. His comments ” suggest that we could have a 50 basis point hike at its next meeting “, he underlined.
Next meeting March 21
Jerome Powell’s statements come as one of the Fed governors, Christopher Waller, indicated last Thursday that he would support a hike in the key rate to above 5.4% in the coming months, if inflation does not slow faster, and the labor market remains tight. It would be the highest level since 2006.
Fed officials released their latest forecasts in December, and will update them on March 21-22, at their next meeting. If the Fed’s intention to be more aggressive on rates is confirmed, the risk of recession will still increase, which would have an impact on corporate earnings.
(With AFP)
The dollar soars after the words of Jerome Powell
Around 3:10 p.m. GMT (4:10 p.m. in Paris), the greenback climbed 1.04% to 1.1904 dollars for one pound, a level more observed since the beginning of January, and 0.76% to 1.0602 dollars for one euro.
