The US Federal Reserve has announced that it is preparing to raise its rates in a high inflation context and a labor market deemed solid.
Le Monde with AFP
The US Federal Reserve (EDF) announced on Wednesday the maintenance of its key rates between 0 and 0.25%, while explaining that it was considering it up next March in a context of high inflation and a labor market deemed strong.
In the face of the Pandemic of Covid-19, the key rates had been lowered in a range of 0 to 0.25% in March 2020 to support the economy through consumption.
“With inflation much greater than 2% and a vigorous labor market, the Committee expects it to be appropriate soon to raise the target range of the rate,” the institution said in a Communiqué.
The Fed specified that it would end its asset purchases “in early March”, a condition for rates. She also reported a reduction in supply constraints, which should help slow inflation.
Slow down the request
The Fed had groomed the ground at its previous meeting, mid-December, announcing that it would end earlier than expected in its purchases of assets, as of March instead of June.
She also had, for the first time, ceased to call “temporary” this inflation that has been, for months, much greater than its long-term goal of 2%.
The prices rose by 7% in 2021, their fastest pace since 1982, according to the ICC index. The Fed favors another inflation indicator, the PCE index, whose data for 2021 will be published on Friday.
Raising day-to-day interest rates should temper inflation by slowing strong demand.
These rates on federal funds determine the cost of money that banks lend themselves to each other, and meet the more expensive credit. However, if credit is more expensive, individuals and businesses consume or invest less, lowering the pressure of demand and therefore inflation.
The Fed had so far shown prudent on the increases, fearing that it does not slowly slow down the economic recovery and, by ricochet, the labor market.
But the country has now almost returned with full employment, the unemployment rate that dropped in December to 3.9%, close to its pre-crisis (3.5%) level, with a shortage of workforce that places employees in force position compared to employers.