(Washington) Faced with inflation still far too high in the United States, and despite the growing risks of recession, the American central bank (Fed) is expected to maintain its pace of sharp rate hikes next week, but could indicate when it counts start slowing down.
Posted at 12:30 a.m.
The Fed’s Monetary Policy Committee (FOMC) meets Tuesday and Wednesday at the institution’s headquarters in Washington.
Prices which continue to climb far too strongly, consumption which is holding up, a job market which is still tight: “We are almost certain that the FOMC will raise the rate range by an additional 75 basis points in November”, anticipate in a note Jonathan Millar, Chun Yao and Colin Johanson, economists for Barclays.
This would be the fourth straight hike of this magnitude, and it would push Fed rates, currently between 3.00 and 3.25%, into the 3.75 to 4.00% range.
The vast majority of market players are expecting such a rise, with others betting on the lower notch, by just half a percentage point, according to CME Group’s futures product valuation.
The decision will be announced Wednesday at 2 p.m. (6 p.m. GMT) in a statement. Then Fed Chairman Jerome Powell will hold a press conference.
Since March, the Federal Reserve has already raised its rates five times, first by the usual quarter of a point, then by half a point, and finally, three times, by three quarters of a point.
“Signals on the trajectory”
And then ? Will rates continue to climb in December? At the risk of weighing too heavily on consumption?
Several Fed officials have spoken in recent weeks of a slower pace ahead.
“The big question is whether the FOMC statement or the press conference that will follow will provide signals on the likely trajectory of policy in December,” Barclays economists point out.
According to them, “the tenor of the discussion […] will likely turn to the risk of over-tightening”.
Because, if the United States returned to growth in the third quarter, with a GDP up 2.6% after two quarters of contraction, recession threatens the year 2023.
“Slower (economic) momentum in the fourth quarter would support a slower pace of rate hikes, starting in December,” said Rubeela Farooqi, chief economist at HFE.
But, she adds, “the results of inflation will outweigh any weakening in the economy.”
In other words, curbing inflation is the priority. At the risk of making the economy bend.
Inflation remained stable in September, at 6.2% over one year, according to the PCE index, favored by the Fed and published Friday by the Commerce Department. Still far too high, however, for the taste of the Federal Reserve, which wants to reduce it to 2%.
The unemployment rate remains at its lowest for half a century, at 3.5%.
Across the Atlantic, the European Central Bank (ECB) is also in the process of tightening its monetary policy: its key rates have just been raised by 0.75 percentage point for the second consecutive time.
Consumption
The rise in key central bank rates is pushing commercial banks to increase the cost of the money they lend to their customers, both individuals and professionals, discouraging consumption.
In the United States, consumption, which accounts for two-thirds of growth, has held up so far. But the very popular credit cards will certainly be released less and less in the coming months.
Because as the savings accumulated by households during the pandemic dwindle, as stock market investments become less profitable, as real estate loses value, households will hesitate to spend lavishly.
Mortgage rates, which react upstream of rate hikes, have just exceeded 7% for the first time in more than 20 years, for a 30-year fixed rate, the most common in the United States.
Especially since inflation and the risks of economic slowdown, and even recession, affect a large part of the planet.
This weak growth in US trading partners, but also the strength of the dollar, should limit exports, which will weigh on US GDP.