Financial markets like the press conferences of the President of the American Federal Reserve (Fed), Jerome Powell, his sincere modesty, his reassuring responses and his temperate optimism, which lead to a fireworks at Wall Street, as This was the case, Wednesday, May 4, after the Fed increased its guiding rates, a first since the year 2000, but excluded an increase of 0.75 point.
And then, at night bearing advice, part of the operators reflected, wondering if they had not become intoxicated by the President of the Central Bank. This is how after the party came the thawed on the financial markets, the worst since the upheavals of the COVID-19. Does Jerome Powell deceive his world by letting hope for a smooth landing of the American economy, while inflation is 8.5 %, its highest level since 1981? Less than the Democratic President, Joe Biden, who attributes inflation to Vladimir Putin and to the business cartel, without saying a word on his excessive recovery plan voted in a counter time, in April 2021, who flooded the Americans of liquidity.
But Mr. Powell wants to believe in a miracle, which would allow inflation to absorb itself. He already believed in the fall of 2021, not reacting until it was time, when employment had returned and that bottlenecks persisted in the economy. Joe Biden’s political procrastination to rename him for a second term are undoubtedly not unrelated and have lost precious weeks.
cut the cat’s tail in small pieces
A return to normal is possible, but far from being certain. First, real interest rates are far too low to cool the economy: 3.1 % at ten years with twice higher inflation, it is a homeopathic dose, a placebo. Then, the crisis is not over: the price of raw materials is experiencing a respite, but it is because China is closed due to COVID-19. Within six months, she will put the double bites to leave, and Patrick Artus, economic advisor at the Natixis bank, plans a new inflationary puff.
In this context, the Fed adapts and lets, meeting after meeting, an increasingly strict, but gradually policy. Should we brutally announce the color, even if it means provoking a recession, as Paul Volcker did from 1979 to defeat the stagflation consecutive to the two oil shocks, or cut the cat’s tail in small pieces to prepare the spirits?
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