(Washington) The monetary committee of the US central bank (Fed) began its meeting on Tuesday, during which it should raise its key rates to fight against inflation, and could even proceed to the largest increase in 27 years.
Posted at 11:12 a.m.
Updated at 11:42 a.m.
“The meeting of the monetary policy committee (FOMC) began at 11 a.m. as planned,” a spokesman for the Federal Reserve (Fed) told AFP.
It will end on Wednesday at midday, and will be followed by the publication of a press release at 2 p.m. and then a press conference by the president of the institution, Jerome Powell, at 2:30 p.m.
Key rates, which are currently in a range of 0.75 to 1.00%, should be raised for the third time in a row.
After rising by a quarter of a percentage point in March, then by half a point in May, a further increase is expected. It could be half a point (which corresponds to 50 basis points), or even three-quarters of a point (75 basis points), which would be a first since 1994.
Economists are expecting another half-point hike, according to a consensus from Briefing.com.
But on Tuesday morning, market players were anticipating them, overwhelmingly (96.1%) an increase of 75 basis points, according to the evaluation of CME Group’s futures products. They are banking on the fact that the Fed boss has repeatedly said that the institution will act on the data published.
However, the strength of inflation recorded in May surprised, with an acceleration and a new record in 40 years, at 8.6% over one year and 1.0% over one month, according to the CPI index published on Friday.
Growth, but not too much
Prior to this release, “we shared the universal consensus that the FOMC would raise rates by 50 basis points […]. But the publication of higher than expected inflation for May now leads us to anticipate a rate hike of 75 basis points, “said Jay Bryson and Michael Pugliese, economists for Wells Fargo, in a note.
But other analysts point out that such an increase would be useless, especially since it could be interpreted as a movement of panic.
“As supply improves and demand for goods relative to services declines, margins will shrink and inflation will decline much faster than the markets and the Fed expect,” said Ian. Shepherdson of Pantheon Macroeconomics in a note.
Raising key interest rates has the effect of raising the cost of credit for private and professional borrowers, and therefore of curbing consumption.
But at the risk of weighing on the growth of gross domestic product (GDP) and employment. The chairman of the Fed had however estimated last month, during an interview, that growth was needed, but not too much, to curb inflation.
He also pointed out that this could go through a small rise in unemployment, while the country is facing a tight labor market, with a major labor shortage which is pushing companies to raise wages, which is contributing also fuel inflation.
During this meeting, Fed officials will also update their economic forecasts, the latest from March. They should revise their inflation and unemployment forecasts upwards, and their GDP growth forecasts downwards.
The fight against inflation is a priority for the Fed, but also for Joe Biden, who had received Jerome Powell, at the end of May at the White House, for a rare interview dedicated to this subject.
The monetary committee is meeting for the first time since Jerome Powell officially began his second term on May 23 and Lael Brainard became vice-president of the institution. This monetary committee meeting also marks the arrival of two new governors, Lisa Cook and Philip Jefferson.