Fed kicks off meeting, could make biggest rate hike since 1994

The monetary policy committee meeting, which began at 11:00 a.m. on Tuesday, is primarily aimed at finding solutions to runaway inflation in the United States.

The monetary committee of the American central bank began its meeting on Tuesday, during which it could, to fight against galloping inflation, raise its key rates by three quarters of a percentage point, which would be the largest increase in 27 year.

The Monetary Policy Committee (FOMC) meeting started at 11:00 a.m. (14:00 GMT) as scheduled“, told AFP a spokesman for the Federal Reserve (Fed). It will end on Wednesday at midday, and will be followed by the publication of a press release at 2:00 p.m. (6:00 p.m. GMT) then a press conference by the president of the institution, Jerome Powell, at 2:30 p.m. ).

SEE ALSO – United States: Joe Biden receives the boss of the Fed for a rare interview on inflation

Record inflation at 8.6% over one year

Key rates, which are currently in a range of 0.75 to 1.00%, should be raised for the third time in a row. After rising by a quarter of a percentage point in March, then by half a point in May, a further increase is expected. It could be half a point (which corresponds to 50 basis points), or even three-quarters of a point (75 basis points), which would be a first since 1994. Economists expect a further increase of one half point, according to consensus from Briefing.com.

But on Tuesday morning, market players were expecting them, overwhelmingly (96.1%) an increase of 75 basis points, according to the evaluation of CME Group’s futures products. They are banking on the fact that the Fed boss has repeatedly said that the institution will act on the data published. However, the strength of inflation recorded in May surprised, with an acceleration and a new record in 40 years, at 8.6% over one year and 1.0% over one month, according to the CPI index published on Friday.

Growth, but not too much

Prior to this publication,we shared the universal consensus that the FOMC would raise rates by 50 basis points (…). But the release of higher-than-expected inflation for May now leads us to expect a 75 basis point rate hike.“, thus underlined Jay Bryson and Michael Pugliese, economists for Wells Fargo, in a note. But other analysts point out that such an increase would be useless, especially since it could be interpreted as a movement of panic.

With improving supply and falling demand for goods relative to services, margins will shrink and inflation will decline much faster than markets and the Fed expect.», opines Ian Shepherdson of Pantheon Macroeconomics in a note. Raising key interest rates has the effect of raising the cost of credit for private and professional borrowers, and therefore of curbing consumption. But at the risk of weighing on the growth of gross domestic product (GDP) and employment. The President of the Fed had however estimated last month, during an interview, that growth was needed, but not too much, to curb inflation.

He also pointed out that this could go through a small rise in unemployment, while the country is facing a tight labor market, with a major labor shortage which is pushing companies to raise wages, which is contributing also fuel inflation. During this meeting, Fed officials will also update their economic forecasts, the latest from March. They should revise their inflation and unemployment forecasts upwards, and their GDP growth forecasts downwards. The fight against inflation is a priority for the Fed, but also for Joe Biden, who had received Jerome Powell, at the end of May at the White House, for a rare interview dedicated to this subject. The monetary committee is meeting for the first time since Jerome Powell officially began his second term on May 23 and Lael Brainard became vice-president of the institution. This monetary committee meeting also marks the arrival of two new governors, Lisa Cook and Philip Jefferson.


SEE ALSO – In the United States, the Fed makes the largest rate hike since 2000 to counter inflation

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