Unsurprisingly, the US central bank raised its main interest rate by half a percentage point on Wednesday, now in the range of 4.25 to 4.50%.
The second phase of the fight against inflation has been launched in the United States, where the central bank, after having raised rates very decisively since the spring, is now slowing down and has drastically reduced its growth forecasts for 2023.
The US central bank (Fed) raised its main interest rate by half a percentage point on Wednesday. This is now in a range of 4.25 to 4.50%, the Fed announced in a press release issued after its meeting, saying the decision was unanimous.
This is the highest level since 2007. And the Fed has warned that it is not yet the time to stop: further hikes “will be appropriate”, specifies the institute.
Its officials even expect it to rise above 5.00%, when they had anticipated 4.6% in their previous forecast, released in September.
Fed Chairman Jerome Powell will hold a press conference at 2:30pm (7:30pm GMT).
Less bullish on inflation
This slowdown in rate hikes marks the beginning of a new phase in the fight against inflation, the Fed’s priority for months.
Facing rising prices to their highest level in more than 40 years, the Fed had pulled back the heavy artillery, raising its rates three-quarters of a point on four occasions, a level of hike it hadn’t previously used since 1994.
The Fed, however, is a little less optimistic than in September about the trajectory of inflation, and now sees it slowing to just 3.1% in 2023, when it previously expected 2.8%, according to the index Fed. PCE which favors and wants to bring back about 2%.
For 2022 it expects 5.6%, against 5.4% three months ago.
It has also drastically reduced its growth forecast for 2023, now counting on 0.5% against 1.2% previously. However, this year it has raised it a bit, even to 0.5%, versus 0.2% previously.
The institute does not speak of a recession for next year, despite the risks caused by its fight against inflation, which could slow down economic activity too much.
As for the unemployment rate, currently at 3.7%, he sees it rising to 4.6% in 2023 and 2024, just over the 4.4% he had previously forecast.
Slow decline
The Fed’s key rate was, until March, between 0 and 0.25%, a minimum level intended to support the economy during the Covid crisis by stimulating consumption.
This was also due to the particularly high level of savings of Americans, just at a time when many goods were becoming more difficult to obtain due to global supply difficulties and labor shortages. Prices had skyrocketed as a result.
And, if the decline has started, it remains slow.
Inflation thus slowed down sharply in November, to 7.1% against 7.7% in October, according to the CPI index. This figure, released shortly before the start of the Fed meeting on Tuesday, appears to have finally convinced the custodians of the dollar to ease the steep rate hikes.
“The time to slow the pace of rate hikes may come as early as the December meeting,” Fed Chairman Jerome Powell warned in late November.
The effects of Fed decisions take months to be felt. Consumption therefore remains sustained and the labor market is in excellent health.
The labor shortage faced by American companies forces them to raise wages to attract candidates and keep their staff.
“I don’t think we’re in a price-wage spiral,” Treasury Secretary Janet Yellen told reporters Thursday.
Joe Biden’s Economy and Finance Minister believed that despite the “risks to the economy”, the United States is “on the right path to slowing inflation” and that “the recession can be avoided”.
Even the European Central Bank (ECB), which will meet on Thursday, could move on to the second phase of the fight against inflation, and slow down, after having implemented a monetary tightening since July, unprecedented in its history.
