Jerome Powell, however, was very clear during a congressional hearing in early March: “I am inclined to propose and support a 25 basis point rate hike“.
On the markets, no one expects a rise of half a point anymore, almost all of the players (95.9%) are counting on only a quarter of a point, the others even anticipate that rates will remain at their current level, as assessed by CME Group’s futures products.
In Europe, where inflation is lower, the Fed’s counterpart, the ECB, decided on Thursday to maintain its rates at their historic lows at this stage.
1970s ghost
Inflation in the United States rose to 7.9% year on year in February, according to the Commerce Department’s CPI index, and the war in Ukraine caused a further spike in gasoline and fuel prices. food. The Fed favors another indicator, the PCE index: +6.1% over one year in January.
This raises the specter of double-digit inflation of the 1970s and early 1980s. , but had plunged the country into recession.
“The 1970s, when Fed policymakers had to engineer a painful recession, […] are etched in the institutional memory of the Fed“, again underline the economists of Wells Fargo.
Economist Diane Swonk, of Grant Thornton, says to herself “worried about rising inflation expectations and triggering a more vicious wage-price spiral“. A labor shortage is already driving up wages.
“But (we’re) not there yet and the Fed, along with other central banks, have pledged to avoid a repeat of the 1970s.“, she qualifies in a tweet, pointing out that “it is possible, although it may be accompanied by an increase in unemployment“.
The US job market is now solid, the unemployment rate fell in February to 3.8%.
The Fed is also expected to discuss when to begin reducing its balance sheet, that is, gradually parting with the billions of dollars of Treasuries and other assets it has purchased since March 2020, to support the functioning of the economy.
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