The American central bank, the Fed, still hopes to be able to slow down inflation without causing a recession. It should carry out a fourth sharp increase in its key rates on Wednesday, but finding the right balance will be a high-flying exercise.
“They want to try to achieve what they call a ‘soft landing’, trying to avoid a recession”, commented for Agence France-Presse (AFP) Julie Smith, professor of economics at the university. Lafayette from Eaton, Pennsylvania.
“The question is: can they do it? It’s hard to answer that at this point,” she added.
The Fed’s monetary committee will meet on Tuesday and Wednesday, and will raise its rates again, which are currently in a range of 1.50% to 1.75%.
The institution must however ensure that this voluntary slowdown in economic activity is not too strong, so as not to weigh down, in particular, the labor market.
The hypothesis of an increase of three-quarters of a point (75 basis points), as at the last meeting, in mid-June, thus seems to be unanimous. It was then the strongest increase since 1994.
“I think they will raise rates by 75 basis points. But we can always be surprised by the Fed, ”said Julie Smith, however.
One of the institution’s governors, Christopher Waller, recently opened the door to a one-point increase (100 basis points).
The members of the monetary committee “will probably discuss” this hypothesis, according to Julie Smith, “simply because the inflation figures remain very bad”.
However, she believes, “the other signs […] indicate that previous rate increases have most likely started to work, at least to slow demand [sur] the housing market.
The real estate market, in fact, has slowed down considerably due to exorbitant property prices and rising interest rates.
However, thousands of job offers still do not find takers. And consumption is holding up, despite sales inflated by inflation.
“Recent economic data supports a rate hike of 75 basis points, although a rate hike of 100 basis points could be considered,” said Kathy Bostjancic, chief economist for Oxford Economics, in a note.
Joe Biden’s Minister of Economy and Finance, Janet Yellen, stressed again on Sunday that the US economy is “slowing”, but economic data does not point to a recession.
“I’m not saying we’ll definitely avoid a recession, but I think there’s a way to keep the labor market strong and bring down inflation,” she said.
Uncertainty
The growth of the gross domestic product (GDP) of the United States in the second quarter will be published on Thursday and is expected to increase very slightly, after a negative first quarter (-1.6%). However, a recession is defined by two consecutive quarters of negative growth, which should not be the case here.
According to Mme Yellen however, a recession “is a general contraction of the economy. And even if (the GDP in the second quarter) is negative, we are not in a recession right now,” she pointed out.
Former Fed Vice Chairman Donald Kohn believes, for his part, “a mild recession”, with unemployment higher than the 3.7% forecast by the Fed for 2022, “will be necessary to break this spiral. inflationary,” he told AFP.
“But the uncertainty is so huge,” he added.
Faced with the prices of food, housing, or cars, which continue to climb in the United States, the Fed, since March, has been gradually raising its key rates.
While inflation accelerated further in June, reaching 9.1% over one year (CPI index), this aims to make credit more expensive for households and businesses, in order to slow consumption and, ultimately, to ease the pressure on prices.
Across the Atlantic too, inflation pushed the European Central Bank (ECB) to raise interest rates on Thursday, for the first time in more than ten years, by half a point.