Fri. Mar 1st, 2024

Federal Reserve delays rate cuts

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The headquarters of the American central bank.

Agence France-Presse

The American Federal Reserve (Fed) maintained its rates at their level on Wednesday, as expected, but held off on rate cuts, insisting that it was waiting to have greater confidence in the lasting decline in the rate. #x27;inflation before starting monetary easing.

The US central bank kept its key interest rate in the 5.25% to 5.50% range it has been in since July, a decision made unanimously by the 12 voting members of its monetary policy committee. (FOMC).

He, however, does not anticipate that it is appropriate to cut rates, so long as it does not will not be more certain that inflation is falling sustainably towards 2%, the target level, according to the press release published at the end of its meeting.

A cold shower for the markets, which, given the downward trajectory of inflation, the better balance in the labor market and still solid growth, were hoping for a first decline in March, when of the next meeting.

The Federal Reserve wants to lower its rates in the coming months, after having raised them 11 times between March 2022 and July 2023, to curb high inflation. It had indicated, during its previous meeting, in mid-December, that it planned several rate cuts in 2024, without however giving further details.

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Economic forecasts are uncertain, and the committee remains very attentive to the risks of inflation.

A quote from The American Federal Reserve

The Committee's discussions began Tuesday morning and ended at midday on Wednesday. Reserve Chairman Jerome Powell will hold a press conference mid-afternoon.

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Jerome Powell, Chairman of the US Federal Reserve

These rate increases were intended to curb high inflation by raising the cost of credit. This tightening discourages consumption and investment, and eases the pressure on prices.

Inflation is thus gradually coming back into line .

The evolution of PCE prices, a measure favored by the Fed and which it wants to reduce to 2%, showed inflation underlying – excluding energy and food – at its lowest in almost three years, at 2.9% year-on-year.

Economic growth was much stronger than expected in 2023, even accelerating compared to 2022, to 2.5%.

As for the unemployment rate, it is still at its lowest levels in 50 years, at 3.7% in December, but is gradually rebalancing . January figures will be revealed on Friday.

The economy appears headed for a soft landing in the United States and around the world.

A quote from Nela Richardson, ADP Chief Economist

This amounts to reaching the desired level of inflation, without causing unemployment to soar or a recession.

We are fully focused on our desire to restore price stability, recalled San Francisco Fed President Mary Daly, new voting member of the FOMC, in an interview, but we still have work to do.

Moreover, nine months before the presidential election, and although the Fed is independent of political power, the subject is on everyone's minds. Democratic President Joe Biden and his main Republican competitor, Donald Trump, continue to tout their respective economic successes.

The rise in rates had increased the cost of loans, particularly real estate, while inflation has eroded the purchasing power of households, even if wages have generally increased.

Even consumers seem to be regaining their optimism: the Conference Board's confidence index reached its highest level since December 2021 on Tuesday.

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