According to the chief of the Fed, the fall in interest rates must remain limited so as not to feed inflation

Jerome “Too Late” Powell stands up. The president of the American Federal Reserve (FED) warns Tuesday against the “too sustained” decrease of guidance rates that would slide inflation, while a governor wants, on the contrary, to attack strongly and quickly.

According to him, interest rates are currently “at the right level to react to possible economic developments.”

The Fed reduced its key rates last week for the first time, a quarter of a percentage point. These rates, which guide the costs of loans, are now in a range between 4% and 4.25%.

This relaxation was analyzed as a preventive measure, to breathe the US economy and prevent the labor market from deteriorating even more, despite the fact that inflation remains above the objective of the Fed (it was 2.6% for a year in July and Jerome Powell awaits 2.7% for August).

Only a Fed official voted against this decision, Stephen Miran, who has just joined the institution about the proposal of President Donald Trump.

The new governor begged a more frank descent, half a point at the same time. Stephen Miran has explained since then that the Fed rates should, according to him, to be approximately two percentage points “lower in the coming months. He was previously an economic advisor to Donald Trump, a position that has the intention of assuming in a few months, when his mandate in the Fed, planned to be brief, will be finished.

Twelve people vote together on the level of US guidance rates: members of the Governor Council (six governors and Jerome Powell), president of the Fed of New York and four presidents of the regional Fed that change from one year to another.

“Commitment”

On Tuesday, Jerome Powell maintained some indication for the future. He simply repeated that the situation was “quite unusual”, with pressures on prices, which links with the customs tasks established by the US Executive, at the same time as the pressures on employment.

It attributes to the latter to the “uncertainty” that surrounds public policies “, which weighs investment and hiring decisions.”

However, the tools available for the Central Bank, the key rates, do not allow both problems to solve at the same time. By reducing its rates, Fed can amplify inflation. If I raised them, the economy would stop and, therefore, it would be hired, it is already areas.