“It’s a fight we can’t walk away from, and we won’t walk away from. (…) We will continue to aggressively fight inflation,” assured, this Friday, Christopher Waller, one of the governors of the American Central Bank (Fed). Words that leave little room for ambiguity about the Fed’s strategy in the face of inflation. ” Bringing inflation back significantly and persistently towards our 2% target (will require) policy rate hikes until at least early next year”he predicted.
To fight against soaring prices, the American monetary institution has raised its rates several times since March. They are now in a range of 2.25 to 2.50%, against 0.75% to 1.50% in the euro zone. A further rise of three-quarters of a percentage point is expected at the next meeting on September 20-21. And the governor who was speaking during a speech in Vienna (Austria) pleads for ” a significant hike to put our policy in a position to really slow demand.” and lead to inflation at 2%. A goal that “will take time”he admitted.
While US inflation slowed in July, after reaching its highest level in more than 40 years in June, it remains very high at 8.5% over one year. ” It is still too early to say that inflation is slowing in a significant and lasting way”warned Christopher Waller.
Recession fears ‘have faded’
However, he is optimistic about the ability of the United States to avoid a recession. This is one of the consequences of monetary tightening since the purpose of the rise in rates is to curb consumption and therefore slow growth. The governor believes that recession fears that “ have faded and the strength of the US labor market gives us the flexibility to be aggressive in our fight against inflation”. « We are not ” entered recession in the first half of 2022, he even underlined, while the figures “confirm that the Fed has achieved its (target) of full employment, so my attention is focused on lower inflation”.
“Signs of moderation in economic activity”, in particular on the real estate market, exist, he notes nevertheless. ” As we continue to raise rates, we will have to see, month by month, how households and businesses adjust to the tighter financial conditions and how this adjustment affects inflation.”underlined the governor.
In any case, on the markets, the Fed’s policy seems well integrated. The New York Stock Exchange has indeed chained a third consecutive rising session on Friday thanks to renewed enthusiasm from investors who have finally digested the messages of the American central bank (Fed) and hope for an ebb of inflation. The Dow Jones gained 1.19%, the Nasdaq index gained 2.11%, and the broader S&P 500 index, 1.53%.
ECB raises rates by 75 points
The US governor’s remarks come the day after the unprecedented rate hike announced by the European Central Bank (ECB). The Board of Governors of the Monetary Institute has thus decided to raise key interest rates by 75 basis points. This is the largest increase in the institution’s history. Like the Fed, the ECB intends to fight against inflation which reached 9.1% over one year in August in the euro zone and which will remain “far too strong” on a “extended period”, according to the president of the institution, Christine Lagarde. The objective is to bring the rise in prices as quickly as possible to a neutral rate, around 2%.
In July, the ECB had already raised its rates by 50 basis points, after eight years of negative rates. Despite this new historic increase, Christine Lagarde warned that rates are still « loin » of a level that “will help bring inflation down to 2%”. She said that the following increases, which “will depend on the data” economic, “must be of a magnitude that brings us closer together more quickly” of this objective, ensuring that the ECB would “keep raising rates”.
(With AFP)