The American central bank (Fed) left its rates unchanged on Wednesday, in the range of 5.25% to 5.50%, for the second time in a row, highlighting the strength of the economy, but still ” very attentive” to inflationary risks.
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This is the third time, in the last four meetings, that the Fed has not touched its rates. She wants to avoid slowing economic activity too much, so as not to cause a recession.
Thus, the main key rate remains at its highest level in more than 20 years. This makes credit more expensive for households and businesses, in the hope of curbing consumption and investment, easing pressure on prices.
Inflation, the Federal Reserve’s number one struggle, “remains well above” the 2.0% target, and getting it back on track sustainably will take time, its chairman Jerome Powell warned during a press conference this Wednesday, after the meeting.
It stabilized at 3.4% at an annualized rate in September, according to the PCE index, favored by the Fed.
Jerome Powell did not rule out the possibility of a further increase at the next meeting, indicating that no decision had been made at this stage.
But “the full effects” of the 11 rate hikes carried out since March 2022 “are yet to be felt”, which could take a long time, he stressed.
Especially since the rise in long-term bond rates, if “persistent, could have implications for the Fed’s monetary policy,” he warned.
Wall Street ended this Wednesday with a strong rise, after this status quo of rates.
Jerome Powell “tried to leave an option (on a rate hike) but it didn’t seem very convincing,” stressed Edward Moya, an analyst at Oanda.
“It’s clear the Fed doesn’t know when we’ll feel the full impact of its tightening cycle,” he added.
The president of the Fed, for his part, has assured that the institution, at this stage, “is not thinking at all” to lower its rates.
The US economy, in fact, is much more vigorous than expected, he further noted.
Growth soared in the third quarter and doubled to 4.9% at an annual rate.
At the same time, unemployment remains low, at 3.8% in September, with labor shortages persisting in several key sectors. The October figures will be announced on Friday.
The labor market, which has been facing a significant labor shortage for more than two years, has recently seen an influx of new workers, “both due to increased labor market participation and immigration,” explained Jerome Powell.
This labor input represents “a significant gain” and “really helps the economy. That partly explains why the GDP (gross domestic product) is so high,” he added.
But while the US economy looks stronger than ever, even though it was expected to be in a mild recession earlier this year, clouds are gathering on the horizon, both domestically and worldwide
The war between Israel and Hamas, which began on October 7, could indeed lead to an increase in the price of oil, especially if it were to spread to other countries in the region.
The World Bank estimated on Monday that in the event of widespread conflict in the Middle East, the price of oil could exceed $155, an unprecedented level.
An increase of this type in energy prices would immediately cause an increase in the prices of raw materials, with the risk of increasing inflation again.
And at the national level, in the United States, the election of a “speaker” in the House of Representatives, Mike Johnson, after three weeks of procrastination within the Republican Party, makes it possible to propose a vote on the federal budget for 2024. .
But it’s a safe bet that the showdown between Republicans and Democrats will start again, as the public deficit grows. There are only two weeks left to reach an agreement and avoid a federal state paralysis.