The New York Stock Exchange, September 21, 2022. PETER MORGAN / AP The US Federal Reserve (Fed, central bank) raised its rates again on Wednesday, September 21, and it’s not over. It decided on a third consecutive increase of 0.75 point in its key rates, fixing the cost of short-term money in a range between 3% and 3.25%. This is the highest level since 2008, at the start of the great financial crisis. At its meetings in November and December, the monetary institution should, according to its own forecasts, further tighten the credit screw by 1.25 points. Ultimately, in 2023, the cost of money should exceed 4.5%. The surge is spectacular: the rates were still almost zero in March, and this since the start of the Covid-19 pandemic. This probable tightening is 1.2 points higher than the June forecast. Read also: Article reserved for our subscribers In the United States, the Fed promises to fight inflation, even if it means causing the economy to slow down “We will continue until we are convinced that the work is done”, has warned Fed Chairman Jerome Powell. So the idea that it is possible to fight inflation, which is at its highest level in forty years, by having minor rate hikes is definitely dead. The Fed seems ready to take the risk of a recession. “The chances of a soft landing are likely to diminish as policy needs to be more restrictive. But a failure to restore price stability would bring greater pain later, Powell said. No one knows if this process will lead to a recession or, if so, how deep that recession will be. According to the central bank, growth is expected to fall to +0.2% this year and +1.2% in 2023 (compared to +1.7% each year in its June estimate), while the unemployment rate should rise to 4.4% of the active population in 2023 and 2024, while it is close to historic lows (3.7%). The Fed determined to fight inflation This hardening of tone has two explanations. First, inflation is much more entrenched in the US economy than the Fed hoped. The figure for August had the effect of a cold shower: admittedly, the increase in prices over one year fell back to 8.3%, against a maximum of 9.1% in June, but this phenomenon is explained by the drop in fuel prices – the price per gallon fell from 5 dollars in mid-June to 3.68 dollars. This ebb cannot hide the fact that food continues to increase, as does housing, the first item in the index, up 6.2% annually. You have 59.99% of this article left to read. The following is for subscribers only.
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