Faced with inflation, Fed Acts its first rate increase since 2018

To combat price flight, the US Federal Reserve has decided on Wednesday to raise its key rates. The institution chaired by Jerome Powell predicts six additional increases this year.

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The whatever it costs to combat COVID-19 is finished, place in the fight against inflation. The US Federal Reserve (Fed, Central Bank) decided on Wednesday, March 16, to go up its key rates of a quarter of a point. Short-term money will now be lent to banks at a rate of between 0.25% and 0.5%. This is the first rate hike since December 2018 and it will be followed by six more this year, one at each meeting, according to the Fed projections. Jerome Powell, its president, did not exclude half-point rises if necessary.

Three additional raises in 2023 are already envisaged, which would increase the rates to 2.75%. This level would be the highest since March 2008. Never-seen since the great financial crisis that broke out in September of that year, with the bankruptcy of the law bank Lehman Brothers.

Since December 2021, the Fed has revised sharply its inflation forecasts, which is expected to reach 4.3% this year, compared to 2.8% in December 2021. It has even been off at 7, 9% in February (over one year), a record since January 1982, and has spread throughout the economy. The institution has been trapped by the return of inflation, due to an excessive supply of money, due to an ultra-accommodative monetary and budgetary policy since the CVIV-19 crisis, and because of persistence bottlenecks that hindered the economic recovery.

In press conference, Mr. Powell stated that he thought that inflation would reach his peak towards the end of the first quarter of 2022. But the war in Ukraine has revived inflationary pressures, causing an increase in lessons. Energy and food raw materials, and still disrupted global supply chains, due to the exclusion of Russia of Western trade and CVIV-19 thrust in China. The peak should nevertheless be held around the summer, especially since it will manifest an optical effect with the comparison with the figures of last year: prices in the United States started flying in May 2021.

The Fed ready to sacrifice the growth

m. Powell conceded that the Fed would have acted earlier if she had known these elements, but he explained that he could not “offer luxury” to know if he was running after inflation.

History has shown that the US Central Bank had trouble, in the 1970s, to combat inflation without provoking contraction of the economy, but Mr. Powell believes that “the probability of a recession by next year is not particularly high “. He stressed that business balance sheets and household finances are healthy and the job market is particularly strong, and even tense, with 1.7 job offer for every unemployed. In this context, the United States can afford a stiffening of financial conditions.

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/Media reports.