Fed considers pause in rate hikes
A break would allow time to observe the effects on consumption and prices of the 10 rate hikes already carried out since March 2022 by the Fed.
PostedMay 31, 2023, 11:45 p.m
Included in the range of 0 to 0.25% during the pandemic, the rates are now between 5.00 and 5.25%. (Pretext image)
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Two weeks before the next meeting of the American central bank (Fed), the hypothesis of a pause in rate hikes is resurfacing, despite inflation still very high, in order to give the 10 previous hikes time to take effect. .
A break at the next meeting, June 13-14, “would allow the committee to observe more data before making decisions on the magnitude” of hikes still needed, one of the Fed governors said on Wednesday. , Phillip Jefferson.
However, the rates could, if necessary, resume their ascent during the following meetings, underlined the one who should take the vice-presidency of the institution, after having been chosen by Joe Biden, and pending his confirmation by the Senate. The Fed, since March 2022, has raised its key rates 10 times. Included in the range of 0 to 0.25% during the pandemic, they are now between 5.00 and 5.25%.
This leads the banks to raise the cost of the loans they offer to households and businesses, in order to ease the pressure on prices. Market expectations are playing yo-yo: two thirds of players are now counting on a break in June, against only a third on Tuesday, but two thirds in the previous weeks, according to the assessment of CME Group.
Break or 11th increase?
The president of the Philadelphia Fed, Patrick Harker, also showed himself favorable on Wednesday to keeping rates at their level at the next meeting. “I am more and more in the rising camp of those who think that we must avoid the rise during this meeting”, said the person in charge of this regional branch, during a conference organized by the NABE (National association for business economics).
“We have to get to a point where we have a policy where we think it’s restrictive, and I think we’re close, if not at that point right now. And so I think we can take a little time,” he explained. This official, who in 2023 has rotating voting rights within the monetary policy committee – the decision-making body of the Fed -, however, also warned that a break in June could be followed by further increases.
A break would allow time to observe the effects on consumption and prices of the 10 hikes already carried out, as well as of the recent banking crisis, which has also complicated access to credit for households and businesses, and could act as a rate hike.
Because the risk of too much tightening is to slide into a recession. Both officials believe, however, that the US economy should continue to grow. Inflation, however, rose again in April, according to the PCE index, favored by the Fed, to 4.4%, against 4.2% over one year, and 0.4% against 0.1% over a month.
Another measure, the CPI index, slowed year-on-year to 4.9% but accelerated month-on-month to 0.4%. May data will be released on June 13, the first day of the Fed meeting. To make their decision, Federal Reserve officials will be looking closely at the May jobs numbers, released on Friday.
The unemployment rate is expected to rise very slightly, to 3.5% against 3.4% in April, with fewer job creations (188,000 against 253,000). A Fed survey, released on Wednesday, showed that employers in the United States, which have faced a labor shortage for more than two years, continue to have “difficulty finding workers across a wide range of skill levels and economic sectors.
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