Washington — The US central bank (Fed) tightened its monetary policy again on Wednesday, in the face of inflation still too high, and warned that it would have to tighten further, which will be painful for households.
“We need to realign supply and demand. And our way of doing that is to slow the economy,” Fed Chairman Jerome Powell said at his news conference.
The powerful US Federal Reserve thus raised its main key rate by three quarters of a percentage point, which now stands in a range of 3.00 to 3.25%.
This is the third time in a row that the Monetary Policy Committee (FOMC), the Fed’s decision-making body, has made a hike of this magnitude. It had started March with a usual quarter-point increase, before rising by half a point in May.
And the move should continue into 2022, until the key rate rises another percentage point.
Because the Fed is “firmly resolved to reduce inflation to 2% and will continue to do so until the job is done,” Jerome Powell hammered, even warning of the risks that “a premature relaxation of monetary policy” could entail.
The New York Stock Exchange closed lower on Wednesday, disconcerted by these even more voluntary than expected monetary policy forecasts.
There is no “painless” way
The rise in the reference rate increases the interest rates of various loans to individuals and professionals, in order to slow down economic activity, and therefore relieve pressure on prices.
Mortgage rates, for example, have skyrocketed since the beginning of the year, even topping 6% for a 30-year loan, a first since 2008. This is dragging down sales in this sector, which had been healthily brash since the start of the year. start of the pandemic.
But this will not be easy: “We have to leave inflation behind. I wish there was a painless way to do this, but there isn’t,” Powell explained.
Thus, the Fed, which has also updated its forecasts for the US economy, now forecasts almost zero GDP growth in 2022 (+0.2%), when it had +1.7% in June. She sees it then bounce back to 1.2% in 2023.
This will push up the unemployment rate, which currently stands at 3.7%, one of the lowest in 50 years. It should reach 3.8% on average in 2022 (3.7% previously anticipated), then 4.4% in 2023 (3.9% anticipated in June).
However, the excellent health of the labor market gives the Fed room to act incisively, when there are not enough workers to fill all the vacant positions.
2.8% inflation in 2023
Inflation forecasts, on the other hand, remain close to expectations in June: 5.4% in 2022 (vs 5.2%) for the PCE inflation index, before slowing sharply in 2023, to 2.8% (versus 2.6% previously).
The Fed favors this inflation rate, which stood at 6.3% per year in July, according to the latest data available, to the CPI index, which refers in particular to the indexation of pensions.
It is true that it slowed down in August in the United States, thanks to the drop in gasoline prices, but, at 8.3% year-on-year in August, it showed pressure on prices that was still very strong, with generalized inflation.
This deliberate slowdown of the economy is very complicated, because too much restraint could lead the United States into the recession that is already looming over the entire world economy.
However, letting inflation take hold would mean even more painful measures for households and businesses, as happened 40 years ago, after years of sky-high prices, sometimes close to 15%.
The US central bank, like its counterparts around the world, is trying to rein in inflation caused by supply chain disruptions linked to Covid-19 and exacerbated by rising energy prices. and food with the war in Ukraine.
Many are meeting this week, including the Bank of England (BoE) and the Bank of Japan (BoJ) on Thursday. On Tuesday, Sweden’s bank, the Riksbank, had surprised with an unprecedented rise of one point.
At the beginning of September, the European Central Bank (ECB) had raised its rates by three quarters of a percentage point, something unheard of.
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