The Fed wants to raise rates much faster

(Washington) Officials of the US Central Bank (Fed), who want to raise key rates in the face of inflation, plan to do so much faster than during the last period of economic recovery and growth.

“Most of the participants” at the last meeting of the Fed’s monetary committee on January 25-26 “suggested that a faster pace of increases […] interest rates only in the post-2015 period would probably be justified”, according to the minutes of this meeting, published on Wednesday.

The Fed is preparing to tighten its monetary policy. It had, until the end of 2021, been very cautious on rate hikes, so as not to hinder the recovery or weigh on the job market.

But economic growth is now threatened by high inflation. Faced with this, the rise in rates is the best weapon, because it has the effect of increasing the cost of credit, and therefore slowing consumption in order to ease the pressure on prices.

“Most participants noted that, if inflation does not decline as they expect, it would be appropriate for the committee to remove the accommodation policy at a faster pace than it currently does,” he said. specified in this report.

The Fed is expected to raise rates in March, which had been cut to a range of 0 to 0.25% two years ago, in the face of the expansion of the COVID-19 pandemic in the United States and the imminent threat to the economy.

But the pace should be faster, as the US economy is now stronger than in “2015, when the (Fed’s monetary) committee last began a process of removing its accommodative monetary policy”, have noted the officials of the monetary institution.

They thus “estimated that there were much better prospects for growth in economic activity, considerably higher inflation and a much tighter labor market”.

It was in December 2015 that the Fed started raising rates after the 2008 financial crisis. They remained in a range of 0 to 0.25% from December 2008 to December 2015.

They were then, over three years, raised eight times, by 25 basis points each time, to the range of 2.25 to 2.50%.