WASHINGTON — The Federal Reserve (fed) The United States raised its main official interest rate by a quarter of a percentage point (0.25%) this Wednesday for the tenth time in a row since March 2022, to try to curb inflation despite signs of a slowdown in the economy and the latest banking crisis.
The main interest rate is now located in a range of 5.00% to 5.25%, the highest since 2006, after a unanimous decision.
Those responsible for the Fed stated in a statement that they will observe the effects of their decision to decide whether to further tighten monetary policy until inflation reaches the 2.00% target.
Market players are now waiting for a pause in their increase, which increases the cost of credit for households and companies but, when economic activity slows down, they should help ease the pressure on prices.
In their statement, Fed officials seemed less adamant about future rate hikes than at previous meetings.
They said that they would observe the effects of the successive decisions and the term in which they took effect on the real economy, as well as “economic and financial evolution”, to decide if a greater tightening is necessary for inflation located in the . target of 2.00%.
Its chairman, Jerome Powell, has repeated for several months that bringing inflation back to the 2% target will be a long and difficult effort, but also necessary because, otherwise, in the long term there would be equally dire consequences.
The US economy has held up but is now showing long-term and finally visible signs of a slowdown.
Last week, first quarter growth was 0.3% over the last three months of 2022 and just 1.1% annually. And the probability of a recession widely anticipated by the markets.
Ryan Sweet, chief economist at Oxford Economics, told AFP: “Monetary tightening and recent tensions in the banking system will lead to a moderate recession, although stronger than we anticipated.”
On the other hand, the fragility of some banks back to the front with the bankruptcy of the regional bank First Republic, finally bought on Monday by the giant JPMorgan Chase, number one in the sector.
“fear is back”
Concerns about the soundness of these mid-sized banks remain strong, and several of them saw their shares fall on Wall Street on Tuesday, including PacWest Bancorp (-27.78%) and Western Alliance (-15.12%).
“Fear is back in the banking sector,” said Adam Sarhan of 50 Park Investments. “Fear is a very powerful feeling on Wall Street. When he walks in the door, logic goes out the window,” he added.
“The Fed should see” the difficulties of these banks “as a game changer,” said Karl Haeling of LBBW, rather than seeing the banks as “isolated cases of mismanagement.”
These regional banks suffer mainly from the increase in the rate that sets the price of the money that the entities lend to each other. In just over a year it went from a range between 0 and 0.25% to values between 4.75 and 5% today.
The Fed will announce its decision in a statement at 1800 GMT followed by Powell holding a press conference.
Tighter credit conditions may “slow activity and employmentPatrick Harker, president of the Fed’s Philadelphia branch, said on April 20.
These conditions could have the same effect as rate increases by slowing demand and therefore higher prices, Powell stressed.
After the expected new hike, economists will focus primarily on the language of the statement and “whether the reference to ‘firmer’ changes,” said Art Hogan of B. Riley Wealth Management.
Many in the market expect the Fed to declare a pause or at least release a less serious statement on the currency front.
However although there inflation fall in March, there inflation core (which excludes food and energy costs) slowed down a little and is now higher than clean inflation.
FOUNTAIN: With information from AFP