United States | US inflation could take root, Fed says

(Washington) U.S. central bank (Federal Reserve) officials in June expressed deep concern that skyrocketing inflation could take hold and reiterated their commitment to keep raising interest rates to ease price pressures , according to the minutes of their last meeting published on Wednesday.

During the meeting of the Monetary Policy Committee on June 14 and 15, they took note of the fact that “inflationary pressures [n’avaient] not yet shown signs of slowing down.

In other words, the rise in prices could be “more persistent than they had previously expected”, according to the document, the famous “minutes” of the Federal Reserve (Fed).

At that meeting, they hiked interest rates by 0.75 percentage points, the biggest in nearly 30 years.

And they are not ruling out a similar hike at their next meeting on July 26-27.

As economists expected inflation to slow, consumer prices jumped 8.6% in May year on year, the highest level in more than four decades.

Many Fed policymakers therefore saw it as “a significant risk […] that high inflation might take root” while public opinion might “question the Committee’s determination” to stem the inflationary spiral.

So the minutes insist that officials are determined to continue their efforts to cool the economy at least until the end of the year.

How to control prices?

With high prices for food, energy, housing and other goods weighing on American families, Fed officials “stressed that an appropriate tightening of monetary policy, coupled with clear communications and effective, would be essential to restore price stability”.

However, the desire to control prices could prove difficult in an international context marked by the continuation of the war in Ukraine and a series of confinements in China which have further disrupted the supply chain.

US central bank officials therefore acknowledged that they may need to be even more aggressive in tightening monetary policy, “should elevated inflationary pressures persist”.

Uncertain economy

Record inflation is eating away at household purchasing power and has plunged Democratic President Joe Biden’s popularity rating.

With the November midterm elections approaching, Fed Chairman Jerome Powell’s task is complex, as he must bring inflation down without derailing the U.S. economy, which would be even more devastating for the tenant of the White House.

Until recently, Jerome Powell thought he could fight inflation while avoiding a recession.

But last month he acknowledged that a contraction in gross domestic product (GDP) was not entirely inevitable, even if that was not the point of the rate hike.

Since then, the possibility of a recession has sent global equity markets tumbling in recent weeks.

Joe Biden praised the efforts of the central bank and expects inflation to slow to prevent elected Democrats from losing control of Congress in the November elections.

Rates, which had been cut to near zero in March 2020, began to rise last March to temper sustained US consumer demand for homes, cars and other goods.

In addition to demand, logistical problems and labor shortages have largely fueled inflation since last year.

The invasion of Ukraine by Russia and then the sanctions against Moscow have exacerbated the rise in food and fuel prices.

Fed officials have repeatedly said they will be watching economic indicators month by month to decide whether or not to raise rates further.

On Friday, the Labor Department will release job creation figures and the unemployment rate.