The Fed’s main policy rate is now in a range of 4.75-5.00%, the highest level since 2006, and the institution is planning further hikes.

The Fed also warned in a statement that the recent banking crisis was “likely (…) to weigh on economic activity, hiring and inflation”. “The magnitude of these effects is uncertain,” she said.

But savers’ money is “safe” and the banking system remains sound, assured Fed Chairman Jerome Powell at a press conference, who stressed that the institution is “resolved to learn the lessons of the episode. “.

Fed officials largely anticipate additional rate hikes in the coming months, but refer more broadly in the statement to “additional policy firming actions,” without mentioning rates specifically.

Despite the difficulties, the possibility of a soft landing for the US economy “still exists”, added Jerome Powell, saying the Fed is “trying to find” the right path.

Difficult arbitration

The US central bank also updated its economic forecasts on Wednesday, the last of which were published in December. It now anticipates inflation for 2023 at 3.6%, once morest 3.5% previously, and for 2024 at 2.6%, once morest 2.5%.

Forecasts in terms of gross domestic product (GDP) growth have been revised down slightly, to 0.4% from 0.5% for 2023, and to 1.2% from 1.6% for 2024.

The powerful Fed was faced with a difficult trade-off: continue to raise its main key rate to curb high inflation or take a break to avoid aggravating the difficulties of the banks, anticipations showing the hesitations of the market on the subject.

The recent bankruptcies of US regional banks Silicon Valley Bank (SVB), Signature Bank and Silvergate have created a wave of concern. Governments, central banks and regulators intervened urgently to try to restore confidence, the best weapon to avoid contagion.

>> Listen to the interview with John Plassard, investment specialist at Banque Mirabaud

The US banking system is strong

“We must strengthen supervision and regulation” of banks, conceded Jerome Powell, who recalled that an investigation by regulators is underway and who was in favor of conducting an independent investigation.

US Treasury Secretary Janet Yellen assured a Senate committee on Wednesday that the US banking system was sound. “Recent actions by the federal government have demonstrated our strong commitment to taking the necessary steps to ensure the safety of depositors’ savings,” she added.

“It is important to be clear: the shareholders and creditors of failing banks are not protected by the government. And no loss (…) will be borne by the taxpayer”, also underlined the Minister of the Economy and Finance by Joe Biden.

Fear of contagion

After two rebound sessions at the start of the week, European stock markets moved around equilibrium on Wednesday and ended on a mixed trend. Wall Street was down slightly following the start of the Fed Chairman’s press conference.

The dollar, for its part, lost more than 1% once morest the euro, with currency traders interpreting the Fed’s communication as a sign of easing.

The Fed loaned around $164 billion to US banks within days so that any customers who wanted to withdraw their money might do so, as well as $142.8 billion to the two entities created by US regulators to succeed SVB and Signature. Bank.

Contrary to the fight once morest inflation led by the Fed, these loans have increased its balance sheet by 297 billion dollars, which it had nevertheless been trying to reduce since June.

Under pressure

The American central bank was all the more under pressure as the fall of these banks was pushed by increases in its rates, which climbed at an unprecedented rate since the beginning of the 1980s, during the episode of very high inflation. then experienced by the United States.

And its European counterpart, the ECB, last week raised its rates by 0.50 percentage points, assuring that it would not compromise between price stability and financial stability.

In the United Kingdom, inflation rebounded in February to 10.4% year on year, driven by a further acceleration in food prices.

ats/miro