Fed interest rates are now expected to rise more slowly, but the fight against inflation is far from over, according to the central bank boss, who also hinted that a soft landing for the economy was still “very plausible”.
“The time to slow the pace of rate hikes could come as early as the December meeting,” U.S. Federal Reserve Chairman Jerome Powell said in a speech at the Brookings Institution in Washington on Wednesday.
The episode of increases in the key interest rate of three quarters of a percentage point, well above the usual quarter point, and which had not been used since 1994 before June, could therefore soon be over.
The next Fed meeting is scheduled for December 13-14.
The chairman of the Fed also showed himself to be more optimistic than a few weeks earlier on the health of the American economy in the months to come. He thus estimated that a “soft landing”, which would see inflation return to the nails without plunging the United States into recession, is “very plausible”, whereas he had explained at the beginning of November, to the outcome of the Monetary Committee meeting, that the way to achieve this had narrowed.
“Considerable uncertainty”
However, the president of the powerful institution warned that the work was far from over. “Inflation remains far too high,” he said. He pointed out that the PCE inflation index, the Fed’s favorite barometer and whose October figures will be published on Thursday, is expected at 6% year on year, down slightly from 6.2% in September. . The other inflation index, the CPI, which benchmarks and is used to index pensions, slowed to 7.7% year on year in October from 8.2% in September.
“Low months in the data are often followed by rebounds,” said Jerome Powell, however. Therefore, the Monetary Policy Committee, the Fed’s decision-making body, expects “further hikes will be appropriate”, he warned. It is “likely” that rates will remain high “for some time”, he also warned.
Mr Powell, on the other hand, did not specify how high to increase these overnight rates, which are currently in a range of 3.75 to 4% after starting from zero at the start of the year. . “There is considerable uncertainty about what rate will be sufficient” to tame inflation, he said.
“Small Steps”
Earlier Wednesday, another Fed official, Governor Lisa Cook, had also indicated that “it would be prudent to take smaller steps”, stressing that after the rate hikes already made, “the impact monetary policy would take time. Nor had she ventured to specify what would be the ideal rate to achieve. “We will only know over time, by observing how the economy evolves,” she had simply indicated.
One of his colleagues, James Bullard, president of the St. Louis Fed, a member also voting this year on the Monetary Committee, had estimated on Tuesday that this final rate should be at 4.9%, which implies further increases.
Before the next meeting, Fed members will have had the latest unemployment figures available to them, which will be released on Friday. The unemployment rate is expected to be stable in November, at 3.7%, with a slowdown in job creation. Hiring in the private sector slowed sharply in November, even registering the sharpest slowdown in nearly two years, according to the monthly ADP/Stanford Lab survey published on Wednesday.
As for GDP growth in the third quarter, it was a little stronger than initially announced, at 2.9% at an annualized rate, according to a second estimate published on Wednesday as well.