The Fed will attack hard to get the US economy out of inflation – 07/27/2022 at 15:20

The Fed building in Washington, May 4, 2022 (AFP/Jim WATSON)

Faced with prices that continue to rise in the United States, the American Central Bank should strike hard on Wednesday to try to control inflation, while taking care to protect the economy from the economy in waiting.

The monetary committee of the powerful Federal Reserve (Fed) must announce a new sharp increase in key rates.

The meeting of the monetary policy committee (FOMC), which started on Tuesday, continued on Wednesday “at 09:00 (13:00 GMT) as planned,” a spokesman for the Federal Reserve told AFP.

The decision will be announced at 2:00 pm (6:00 pm GMT) in a statement, followed by a press conference by Fed Chairman Jerome Powell at 2:30 pm

“We expect the Fed to raise (rates) by 75 basis points, (…) fulfilling the most aggressive tightening cycle since the 1980s,” said Gregory Daco, chief economist of EY-Parthenon.

This is what it already did at the previous meeting in mid-June, bringing rates to a range of 1.50 to 1.75%.

This is the largest increase since 1994. This time, a bigger increase, at some point, may even be on the table.

The goal: to make credit more expensive to slow down consumption and, finally, to ease the pressure on prices. Inflation again reached a new record in June, at 9.1% for a year, unheard of in more than 40 years in the world’s largest economy.

Consumption is the engine of the American economy, accounting for nearly 3/4 of GDP.

– “Opportunity” –

Comments that Jerome Powell may make on the rate hike the institution plans for the coming months will also be scrutinized and analyzed by observers.


Evolution of the main FED key rate since 1985 (AFP / )

Evolution of the main FED key rate since 1985 (AFP / )

The Fed has indicated that a drop in inflation is needed to consider stopping raising rates, or at least slowing the pace of increases. “We expect this condition to be met in time for the September meeting,” added Ian Shepherdson.

But the long-expected economic slowdown to lower prices could prove too strong, and throw the world’s largest economy into recession.

The European Central Bank (ECB) also began to tighten monetary policy, thus following the lead of many financial authorities. And the International Monetary Fund (IMF) said on Tuesday that it is important that these institutions continue to fight against inflation.

This is of course not without difficulty and “a tighter monetary policy will inevitably have economic costs, but any delay will only make it worse”, according to the IMF.

The Fed hopes to achieve a “soft landing”.

– Recession? –

The good health of the American economy should allow it to escape a recession, according to the Minister of Economy and Finance of Joe Biden, Janet Yellen.

Fed Chairman Jerome Powell in Washington on June 15, 2022 (AFP / Olivier DOULIERY)

Fed Chairman Jerome Powell in Washington on June 15, 2022 (AFP / Olivier DOULIERY)

The IMF is not so optimistic. “The current environment suggests that the possibility of the United States recovering from the recession is low,” its chief economist, Pierre-Olivier Gourinchas, warned on Tuesday.

The international institution now expects only 2.3% growth in the United States for this year, ie 1.4 points lower than the most recent forecasts, published in April.

Second quarter gross domestic product (GDP) growth will be released on Thursday. It should be very slightly positive, after the negative first quarter (-1.6%), thus saving the American economy from recession for this period.

If it turns negative again, the world’s largest economy will enter a technical recession, with two negative quarters in a row.

The very definition of recession, however, is being debated in the country as this publication approaches: is it two consecutive quarters of negative growth? Or a broader deterioration of economic indicators, which is not currently the case?

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