(Washington) Inflation in the United States remains too high, the president of the American central bank (Fed), Jerome Powell, declared Thursday, insisting on the need to move forward “cautiously” so as not to harm the economy. without, however, excluding raising rates further if necessary.
Jerome Powell also stressed that “geopolitical tensions are very high and pose significant risks for global economic activity”.
In a rare personal statement, he said he “found the attack on Israel horrifying, as did the prospect of further loss of innocent lives.”
His speech at the Economic Club of New York was delayed after demonstrators from the Climate Defiance group burst onto the stage, who called for an end to financing fossil fuels, according to images broadcast by American media.
“Inflation is still too high, and a few months of good figures are only the beginning of what it will take to be certain that inflation falls sustainably towards our objective” of 2.0%, underlined the president of the Fed.
But, he warned, “the path may be strewn with pitfalls and take time.”
” Caution ”
Inflation remained stable over one year in September in the United States, at 3.7% over one year, according to the CPI index published by the Department of Labor, but slowed over one month, for the first time since May . The PCE index, favored by the Fed, will be published on October 27, just before the institution’s next meeting, on October 31 and 1er november.
Jerome Powell did not rule out the possibility of raising rates further, in the event of “additional signs of sustainably above-trend growth”, or if tensions on the labor market cease to ease. These factors “could […] justify a further tightening of monetary policy,” according to him.
Questioned afterwards, he clarified that in his opinion, “the evidence does not show that the policy [monétaire] is today too restrictive. Which leaves the door open to additional rate hikes.
But he insisted, in his speech, on the fact that the monetary policy committee (FOMC), the Fed’s decision-making body, “proceeds with caution” to sustainably curb inflation, without causing a recession.
The Fed has raised rates 11 times since March 2022. They are now in the range of 5.25-5.50%, the highest since 2001.
Monetary policy is now “restrictive”, it “exerts downward pressure on economic activity and inflation”, specified Jerome Powell.
However, the effects of these actions take time to be visible in the economy, and this could continue to take its toll, he said.
Cycle completed
Economists mostly read the end of rate increases in Jerome Powell’s comments. Almost all market participants now expect rates to remain at their current level at the next meeting, according to CME Group’s assessment.
“The Fed has completed its tightening cycle,” commented Gergory Daco, chief economist for EY Parthenon, who however does not anticipate a reduction before June 2024.
Another official of the institution, Patrick Harker, president of the Philadelphia Fed, estimated that “we have arrived at the moment where we can maintain rates at the level at which they are”.
“Doing nothing right now is doing a lot. As long as rates remain restrictive, we continue to put downward pressure on inflation and bring the markets back to a better balance,” he detailed during a speech Thursday in Philadelphia (Pennsylvania).
Like Jerome Powell, he estimated “that a resolute, but patient, monetary policy will allow us to achieve the soft landing that we all want for our economy”.
However, “we will not tolerate a re-acceleration of prices. I am ready to revise my view and act accordingly if I see signs of reinflation,” assured Patrick Harker.
The New York Stock Exchange ended lower on Thursday on concerns that the Fed will keep rates high for an extended period of time, as bond yields hit a new high since 2007.