As the war in Ukraine creates new uncertainties, the US central bank could raise its benchmark interest rates this Wednesday to fight inflation, two years after taking them to zero to help the economy faced with the crisis. COVID-19.
The Fed’s goal is to pressure commercial banks to offer their customers higher interest rates on loans, in order to contain the consumption and thus ease pressure on prices, especially as the current supply chain problems are expected to last for months.
With inflation at 7.9% over 12 months in February, its highest level since 1982, the powerful US Federal Reserve (Fed), which holds its monetary policy meeting on Tuesday and WednesdayYou want to get moving.
The organization’s president, Jerome Powell, recently expressed his confidence in the institution’s ability to ensure a “soft landing”, that is, “control inflation without causing a recession”. However, the exercise promises to be delicate and the Fed will have to act strictly.
“The combination of higher inflation and slower growth presents a dilemma for the Federal Reserve,” Wells Fargo bank economists said in a note.
They point out that the Fed will give priority to combating inflation, especially since the monetary institution “has gained credibility in recent decades as the guardian of price stability.”
According to these experts, in 2022 there will be six hikes in interest rates of a quarter of a percentage point (0.25%) each.
For the Joe Biden administration, the ball is now in the Fed’s court, with Treasury Secretary Janet Yellen, a former central bank chair, saying it is “appropriate” for the Fed to act.
Yellen told CNBC on Thursday that she, too, is hoping for “a soft landing.” Since March 2020 the rates have ranged between 0 and 0.25%.
The Federal Reserve generally raises them by 0.25 percentage point each time, but for a while the possibility of a more abrupt 0.50 point increase seemed plausible.
However, Jerome Powell was very clear during a congressional hearing in early March: “I am inclined to propose and support a rate hike (of reference interest) 0.25 basis points”.
In the markets, nobody expects a rise of half a point anymore. Nearly all players (95.9%) are betting on a quarter point, with the others even expecting rates to remain at their current level, according to a CME Group survey.
In Europe, where inflation is lower, the Fed’s counterpart, the ECB, decided on Thursday to keep rates at their current record lows.
With information from AFP
Source: Larepublica
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