There will very likely be one last rise in rates before the end of the year and the cost of money will remain high for a long time, above 5%. This is the main message sent by the American Federal Reserve (Fed, central bank) on Wednesday, September 20, following the meeting of its monetary policy committee.
If it has not touched its key rates, which remain in the range between 5.25% and 5.5%, the Fed should therefore further increase its rates by 0.25 points over the coming months and then do so. fall, according to the monetary institution’s projections, between 5% and 5.25% by the end of 2024. The drop will therefore be very strong, of only half a point, and much lower than that hoped for in June by central bankers, when they still wanted to be able to reduce their rates by 1%, according to their own projections.
Thus, according to commentators, the Fed made a “hawk’s pause”, announcing yet more painful measures, in contrast to the European Central Bank, which made a “dove’s increase”, suggesting that its increase in September 14 rate was the last.
Explanation, inflation still remains too high in the United States. Certainly, over a year, the general price increase was 3.7% in August; this is much less than the record of 9.1% reached in June 2022. But it should be 3.7% in 2023 (compared to 3.9% forecast in June) and 2.6% in 2024. This figure is still above the 2% target set by the Fed.
Thus, with inflation which could fall faster than rates in 2024, monetary conditions will tighten next year, a sign of the central bank’s determination.
Resistance of the American economy
The institution chaired by Jerome Powell is obsessed with not repeating the mistakes of the 1970s and early 1980s, when it let go too early, allowing inflation to rise again.
This fear is all the greater as the resistance of the American economy continues to surprise the Fed. Mr. Powell conceded that growth was higher than expected, with it expected to reach 2.1% this year and 1.5% in 2024 (compared to 1% and 1.1% in the June forecast). As for the job market, it remains incredibly strong, with an unemployment rate expected to not exceed 4.1% of the active population in 2024 and 2025 (compared to 4.5% forecast in June for both years). . Obviously, the considerable rise in rates, with interest rates rising from zero to more than 5.25% since March 2022, has not really slowed down growth and employment, essential steps to eradicate inflation. .
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