In the United States, the Fed delays rate cuts – 01/31/2024 at 10:42 p.m.

The Fed maintained its rates at their levels on Wednesday as expected, but held back on rate cuts, insisting that it was waiting to have greater confidence in the lasting drop in inflation before beginning monetary easing.

The US central bank has maintained its main key rate in the range of 5.25 to 5.50% in which it has been since July, a decision taken unanimously by the 12 voting members of its monetary policy committee (FOMC) .

The Federal Reserve wants to lower its rates in the coming months, after having raised them 11 times between March 2022 and July 2023, to curb high inflation.

But the FOMC wants to be sure not to jump in too early and “does not anticipate it will be appropriate to cut rates until it becomes more confident that inflation is falling sustainably.” towards 2%”, target level, according to the press release published at the end of the meeting.

“Economic forecasts are uncertain, and the committee remains very attentive to the risks of inflation,” it is specified.

A cold shower for the markets, which, in view of the gradual slowdown in inflation, the better balance in the labor market, and still solid growth, were hoping for a first decline in March, at the next meeting.

– “Unlikely” –

And the Chairman of the Fed, Jerome Powell, drove the point home again during his press conference, judging it “unlikely that the Committee will reach, by the March meeting, a level of confidence” sufficient to start lowering its rate.

These disappointed hopes caused the New York Stock Exchange to fall, which ended clearly in the red on Wednesday.

But Jerome Powell also stressed that “almost all” the members of the Fed’s monetary policy committee are “(favorable) of a rate cut this year.”

“The timing of this will be linked to our confidence that inflation is on a sustainable path towards 2%,” he added.

Patience, therefore. The Fed’s rates are “probably at (their) peak for this tightening cycle”, noted Jerome Powell, anticipating “that if the economy develops as expected, it will probably be appropriate to start reducing (them). ..) This year”.

These rate increases were intended to curb high inflation by raising the cost of credit. This tightening discourages consumption and investment and eases pressure on prices.

Inflation is thus gradually coming back into line.

The evolution of PCE prices, a measure favored by the Fed and which it wants to reduce to 2%, showed underlying inflation – excluding energy and food – at the lowest in almost three years, at 2.9% on a year.

Economic growth was much more vigorous than expected in 2023, even accelerating compared to 2022, to 2.5%.

As for the unemployment rate, it is still at its lowest levels in 50 years, at 3.7% in December, but is gradually rebalancing. The January figures will be revealed on Friday.

– There “remains work” –

“The economy appears to be heading for a soft landing in the United States and around the world,” said ADP Chief Economist Nela Richardson.

That is to say, reaching the desired level of inflation, without causing unemployment to soar or causing a recession.

“We are fully focused on our desire to restore price stability,” San Francisco Fed President Mary Daly, new voting member of the FOMC, recalled in an interview, “but we still have work to do.”

Furthermore, nine months before the presidential election, and although the Fed is independent of political power, the subject is on everyone’s minds. Democratic President Joe Biden, like his main Republican competitor, Donald Trump, continues to boast of their respective economic successes.

The rise in rates had increased the cost of borrowing, particularly real estate, while inflation has eroded the purchasing power of households, even if wages have generally increased.

Even consumers seem to be regaining their optimism: the Conference Board’s confidence index reached its highest level since December 2021 on Tuesday.