United States | The Fed sees more rate hikes but anticipates a potential slowdown

(Washington) The US Federal Reserve (Fed) wants to raise interest rates further in order to contain the still very high inflation in the United States, but at its last meeting in late July considered it necessary “all at once” to slow down the pace .

Posted at 2:11 p.m
Updated at 2:29 p.m

“It will certainly become necessary at some point to slow the pace of rate hikes” when assessing the impact of monetary tightening measures on economic activity and inflation, Fed officials said in minutes of July’s currency meeting released on Wednesday.

They also mentioned the “risk that [la Fed] may tighten its policies more than necessary,” stressing that slowing inflation “will certainly take some time,” the “protocol” says.

At this meeting of July 26 and 27, the Federal Monetary Policy Committee (FOMC) raised its key interest rate by three-quarters of a percentage point, as it did at its last meeting in mid-June. It was the largest rate hike since 1994.

The central bank had already raised it by a quarter-point during the previous two meetings, first in mid-March – the usual hike – before accelerating the move in early May with a half-point hike – then the biggest rise since 2000.

These rates are now between 2.25% and 2.50%.

Fed Chair Jerome Powell hinted in July that another “unusually large” rate hike may be needed in September.

Since then, inflation figures for July have been released, showing a stronger-than-expected slowdown to 8.5% over a year and even a zero price increase over a month, according to the CPI index that references it. But it remains very high, almost 9.1% in June, a record for more than 40 years.

The Fed aims to bring inflation back to around 2%, a level considered healthy for the economy. However, she favors another measure of inflation, the PCE index, whose July figure has not yet been released.

The labor market remains very dynamic and the unemployment rate fell to 3.5% in July, down from February 2020 when it was at its lowest level in 50 years. The total number of jobs in the country has also returned to pre-pandemic levels.

The meeting report specifies that several Fed officials have noticed “the first signs of a loosening of the labor market”.

They also expect “US GDP to grow in the second half of this year, but many believe growth will be below trend.”

The next FOMC meeting is scheduled for September 20th and 21st.

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