In the US, the Federal Reserve slows its interest rate hike in light of good news on the inflation front

“We do not yet have a sufficiently restrictive monetary policy. » For those who doubted it, the Federal Reserve (Fed, US central bank) intends to raise its interest rates again, as explained on Wednesday, December 14, by its chairman, Jerome Powell, although it has slowed down the pace. Thus, the institution raised its policy rates by half a point at the end of its two-day meeting.

This pace is slower than the 0.75 point increases achieved four times since June. In one year, the rise has been spectacular: short-term interest rates, which were still fluctuating between zero and 0.25% in March, are now between 4.25% and 4.5%, the highest level in fifteen years. It is the steepest increase since 1980, when then-Fed chief Paul Volcker tried to crush inflation at the cost of a dire recession.

For 2023, interest rates will continue to rise, up to 5.1%, according to estimates by members of the Fed’s Monetary Policy Committee. This figure is higher than the 4.6% estimated in September, and it will be necessary to wait until 2024 before the central bank decides on a downturn in the cost of money. Explanation, inflation is longer than expected. The Fed now expects prices excluding energy and food to rise 3.5% in 2023, compared with 3.1% in September.

The transition will come at the cost of weaker growth next year (0.5%, i.e. a virtual recession against 1.2%) and higher unemployment (4.6% instead of 4.4%) than expected. Sir. Powell has ruled out revising the 2% inflation target upwards to 3%, as some economists have suggested. “We still have work to do”he said, calling price stability one “cellar” economy.

Also read: Article reserved for our subscribers The US economy continues to create jobs

Some very encouraging signs

Nevertheless, there were some very encouraging signs, with inflation slowing more strongly than expected in October and November. Since the annual peak of 9.1% reached in June, the country has returned to 7.1% in November. Excluding energy and food, this figure is 6%, compared with a high of 6.6% in September. The month-on-month rate fell significantly (0.3 and 0.2 in October and November, compared to 0.6 in the previous months).

The question is measuring the effect of the Fed’s policy, which is trying to catch up to 2021, when it still considered inflation to be provisional. This has a clear role in the deflation of the real estate bubble. 30-year mortgage rates are now 6.5%. This is less than November’s 7.25%, but twice as much as a year ago.

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