United States: the recovery is here but the Fed should maintain its support

Published on : 25/04/2021 – 10:10Modified : 25/04/2021 – 10:08

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Washington (AFP)

The American Central Bank (Fed) is still expected to adopt a wait-and-see posture following its monetary meeting on Wednesday, believing that it is too early to change course even if the recovery is coming.

Vaccinations are progressing quickly in the United States, consumption is surging, the spring weather makes it possible to resume outdoor activities.

But if the US economy has started to recover, it is still far from having regained the good health it displayed before the pandemic.

“I expect the Fed to remain resolutely patient despite the inflection of US data towards stronger growth and faster improvement in employment,” Krishna Guha, economist for Evercore, told AFP.

According to him, the institution should note “that the risks associated with the pandemic are not yet over and that there is still a large gap in relation to their objectives, in particular on the labor market”.

Fed Chairman Jerome Powell is regularly asked about when the institution might consider raising its overnight interest rates – which have been in a 0 to 0.25% range since March 2020 – or slowing down debt buybacks.

His answer does not vary: we will have to wait until the economy has recovered, employment has reached a maximum and inclusive level, and inflation has stabilized at 2%, to consider changing the course.

He only agreed to say that asset purchases should be slowed down before considering raising rates. But to think about it, we will have to wait until the economy has regained cruising speed.

– Optimism –

The American Central Bank will therefore probably walk on Tuesday and Wednesday in the footsteps of its European counterpart.

The ECB has in fact maintained its arsenal of monetary support in the face of an economic horizon that is still uncertain, and deemed any debate on the end of massive debt purchases, its main anti-crisis weapon, premature.

The Bank of Canada, on the other hand, announced that it would reduce its own asset purchases on Monday. “Nobody expects a major policy change in terms of rates or asset purchases from the Fed,” also noted Andrew Hunter, economist for Capital Economics, in an interview with AFP.

“Without doubt, the main element which can be expected will come from the press release, with probably greater optimism” as to the economic situation, he added.

– Less worries about inflation –

As for inflation, whose future acceleration has agitated the markets in recent months, the scenario defended by the Federal Reserve now seems to be shared: prices will rise temporarily, temporarily exceeding the 2% targeted by the Fed, but this increase shouldn’t last.

Inflation in the next 12 months “could be a little higher than anticipated by the Fed,” warns Andrew Hunter, adding that the expected price hike, coupled with difficulties in finding labor, ” could push up wages. “

“I don’t think they will be worried at this point, but later in the year it could become more worrying,” he said.

Inflation is feared by consumers because it lowers their purchasing power. But, if it is moderate, it is a sign of the vitality of the economy.

Central Bank President Jerome Powell will hold a press conference at the end of the meeting on Wednesday which will not produce new economic forecasts, expected when the Monetary Committee is next held on June 15 and 16.

US GDP growth for the first quarter of 2021 will be released on Thursday. Analysts expect an expansion of 6.5% on an annualized basis. By the fourth quarter of 2020, Gross Domestic Product had increased by 4%, but for the year as a whole the contraction had been 3.5%, the largest since 1946.

© 2021 AFP

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