The second phase of the fight against inflation has been launched in the United States, where the central bank, after raising its rates very sharply since the spring, is now slowing down and has drastically reduced its growth forecast for 2023. The bank The central US (Fed) raised its main rate on Wednesday by half a percentage point. It is now in a range of 4.25 to 4.50%, the Fed announced in a press release published after their meeting, stating that the decision was made unanimously.
This is the highest level since 2007. And the Fed warned that it was not time to stop yet: more increases “will be appropriate”, the institution specifies. Its officials even plan to push them higher than 5.00%, when they anticipated 4.6% in previous forecasts, released in September. Fed Chairman Jerome Powell will give a press conference at 2:30 p.m. (7:30 p.m. GMT).
Less optimistic about inflation
This slowdown in rate hikes marks the beginning of a new stage in the fight against inflation, a Fed priority for months. Faced with a price hike to its highest level in more than 40 years, the Fed had brought out the big guns, raising rates by three-quarters of a point four times, a level of hike it hadn’t done before. since 1994.
The Fed, however, is slightly less optimistic about the path of inflation than it was in September, now seeing it slow to just 3.1% in 2023, when it previously expected 2.8%, according to the Fed’s PCE index. the Fed. who favors and wants to recover about 2%. For 2022, it expects 5.6%, compared to 5.4% three months ago.
It has also drastically reduced its growth forecast for 2023, now with 0.5% compared to 1.2% previously. However, it raised it a bit for this year, also to 0.5%, compared to 0.2% previously. The institution does not mention a recession for next year, despite the risks generated by its fight against inflation, which could slow down economic activity too much. As for the unemployment rate, currently at 3.7%, he expects it to rise to 4.6% in 2023 and 2024, slightly more than the 4.4% he previously forecast.
slow decline
The Fed’s reference 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 had also been driven by the particularly high level of savings by Americans, at the very time when many goods were becoming more difficult to obtain due to the world’s supply difficulties and labor shortages. As a result, prices had skyrocketed. And, if the decline has started, it is still slow.
Thus, inflation slowed down sharply in November, to 7.1% compared to 7.7% in October, according to the CPI index. This figure, released on Tuesday just before the start of the Fed meeting, appears to have finally convinced dollar watchdogs to cut back on sharp rate hikes. “The time to slow rate hikes could come at the December meeting,” Fed Chairman Jerome Powell warned in late November.
The effects of the Fed’s decisions take months to be felt. Consumption, therefore, remains sustained, and the labor market continues to enjoy very good health. The labor shortages facing American companies are forcing them to raise wages to attract candidates and retain their staff. “I don’t think we’re in a wage-price spiral,” Treasury Secretary Janet Yellen told reporters on Thursday.
Joe Biden’s Minister of Economy and Finance considered that, despite “the risks facing the economy”, the United States is “on the right path to curb inflation” and that “recession can be avoided”. The European Central Bank (ECB), which will meet on Thursday, could also move into the second phase of the fight against inflation, and slow the pace, after having operated since July an unprecedented monetary tightening in its history.
Source: BFM TV
