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United States: the Fed raises its key rate sharply again by three quarters of a point & More Latest News Here

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WASHINGTON — Determined to fight still-high inflation, the US central bank (Fed) on Wednesday announced another sharp rate hike of three-quarters of a percentage point and warned that it now expects near-zero growth in 2022.

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The Fed’s main policy rate now stands in a range of 3.00 to 3.25%, the powerful institution said in a press release.

This is the third time in a row that the Fed has made a hike of this magnitude, after a more usual first hike of a quarter point in March, and a hike of half a point in May.

And it anticipates that additional increases will be necessary in 2022, it is indicated in the press release, until raising the key rate by another percentage point.

Raising the key rate increases the interest rates of various loans to individuals and professionals, in order to slow down economic activity, and therefore to ease the pressure on prices.

Mortgage rates, for example, have risen since the beginning of the year, and have just exceeded 6% for a 30-year loan, for the first time since 2008. This is driving down sales in this sector, which had displayed insolent good health since the start of the pandemic.

Slowdown in inflation in 2023

The meeting of the Monetary Policy Committee (FOMC), the decision-making body of the Fed, began on Tuesday. The institution’s president, Jerome Powell, will hold a press conference at 2:30 p.m. local time.

The Federal Reserve took the opportunity to update its economic forecasts, and now anticipates almost zero GDP growth in 2022, when it was counting, in June, on +1.7%. She then sees it rebound to 1.2% in 2023, less strong, however, than the 1.7% growth she expected in June for next year.

Inflation forecasts, on the other hand, remain close to what was expected in June: 5.4% in 2022 (vs. 5.2%) for PCE inflation, before slowing sharply in 2023, to 2.8% (against 2.6% previously).

The Fed favors this inflation index, which stood at 6.3% over one year in July, according to the most recent figure available, to the CPI index, which refers to the indexation of pensions in particular.

Admittedly, this slowed down in August in the United States, thanks to the drop in gasoline prices, but, at 8.3% over one year in August, showed still very strong pressure on prices, with generalized inflation.

Small rise in unemployment

But this voluntary slowdown in the economy is very delicate, because too much of a brake could tip the United States into the recession which is already hanging over the entire world economy.

The excellent health of the job market gives the Fed leeway to act aggressively.

The current unemployment rate is one of the lowest in 50 years, and there are not enough workers to fill all the vacancies.

The unemployment rate, now at 3.7%, is expected to increase very slightly under the effect of the rate hike, to 3.8% in 2022, close to the 3.7% previously expected, before reaching 4 .4% in 2023 (against 3.9% expected in June).

The powerful institution has hammered it: the fight against inflation is its priority. Letting it take hold would imply even more painful measures for households and businesses, as was the case 40 years ago, after years of soaring prices, sometimes approaching 15%.

The US central bank, like its counterparts around the world, is trying to rein in inflation caused by supply chain disruptions related to covid-19, and exacerbated by rising energy and food prices with the war in Ukraine.

Many are meeting this week, including Thursday, the Bank of England (BoE) and that of Japan (BoJ). Tuesday, the bank of Sweden, the Riksbank, had created the surprise with an unprecedented increase of one point.

In early September, the European Central Bank (ECB) raised its rates by three-quarters of a percentage point, unprecedented.

United States: the Fed raises its key rate sharply again by three quarters of a point
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