The US central bank’s monetary policy committee began its two-day meeting on Tuesday, after which it will announce, unless there are any surprises, to raise key interest rates by half a percentage point, the first of this size since May 2000, in an attempt to control. Standard inflation.
A spokeswoman for the central bank (Federal Reserve) told AFP that the meeting “started at 10 am (2 pm GMT) as planned.”
Inflation has been increasing month by month for a year in the US. Exacerbated by the war in Ukraine, it reached in March a peak not seen since December 1981: +8.5% in one year, according to the CPI.
In March, the Fed began raising interest rates for the first time since 2018. But then it started moving cautiously, raising 0.25 percentage points to raise rates to a range between 0.25 and 0.50%.
It also indicated its desire to make six more increases this year, or as many as meetings by the end of 2022.
With prices pressure relentless, Federal Reserve Chairman Jerome Powell has since acknowledged that it is “absolutely necessary” to restore price stability and raise interest rates “quickly”.
The US central bank has two main tasks: ensuring price stability and full employment.
On the employment front, the unemployment rate fell to 3.6% in March, close to its level before the Covid-19 pandemic (3.5%). Data for April will be released on Friday.
Companies have been facing labor shortages and mass resignations for months. In March, 4.5 million people left their jobs, while the number of job offers rose to 11.5 million, a record high, according to the Census Bureau.
As a result, companies increase wages to attract candidates and retain employees, which leads to increased inflation.
The prospect of an interest rate hike by the Federal Reserve caused a stir in the markets on Monday. US 10-year yields briefly touched the 3% threshold at midday for the first time since late 2018.
In addition to interest rates, the central bank must mark the start of reducing its balance sheet, another major step in normalization.
Investors are especially anticipating Jerome Powell’s press conference on Wednesday, looking for comments on how interest rates will rise after that meeting.
So far, the Fed has clearly communicated its plans, and announced in advance its willingness to tighten aggressively from the May meeting, helping to limit market volatility.
The majority of economists are now pricing in another, bolder increase of three-quarters of a percentage point at the June meeting, which would be the first since 1994.
The Fed is also likely to start shrinking its $9 trillion portfolio of assets as of June, much faster than it did in the previous reduction in its holdings five years ago.
The challenge is to moderate inflation without pushing the world’s largest economy into recession.
Concerns about this have increased in recent weeks as growth has slowed. Indeed, US gross domestic product shrank 1.4% in the first quarter, on an annual basis.
Experts want to be reassured, noting that consumption, a historic driver of US growth, is faltering.
But against the backdrop of the war in Ukraine, and the economic slowdown in China and Europe, a recession is no longer a distant risk.
Federal Reserve leaders currently estimate that they will be able to return inflation to their 2% target without raising interest rates above 3% to avoid stalling demand. In their opinion, this is a “neutral” range that will neither stimulate nor slow economic growth.