2024-05-01 19:51:00
On Wednesday, the US central bank (Fed) kept interest rates unchanged between 5.25 and 5.50%, a range within which they have moved since July. In the question: ” lack of progress » recently on the inflation front, the Monetary Policy Committee (FOMC) specified that ” in recent months there has been a lack of further progress towards the committee’s target of 2% inflation ».
Indeed, since January, when the path of inflation was on track to gradually reach the 2% target, it began to rise again, to 2.7% over the year in March, according to the PCE index favored by the Fed, and at 3.5 % according to the CPI index. An upturn that contrasts with Europe, where the clear decline in inflation is driving The European Central Bank (ECB) to consider an interest rate cut from June.
Wall Street on the rise
However, there is no question of increasing the rates. During a press conference, the head of the Fed, Jerome Powell, ruled out the possibility of a future interest rate increase. To him, he ist « unlikely that the next move on rates will be an increase », and it will undoubtedly be necessary” more time than expected » before one has confidence in the fall in inflation.
Enough to reassure investors. Around 19.10 GMT, the Dow Jones rose 1.30% and the Nasdaq 1.46%. According to Jerome Powell, monetary policy is “sufficiently restrictive” over time. Ten-year bond yields fell to 4.61% instead of 4.68% the previous day.
However, the Federal Reserve marks the beginning of an easing of monetary policy: it announced on Wednesday that it will reduce the volume of assets on its balance sheet more slowly from June. The Fed’s portfolio had grown during the pandemic, when it massively bought securities, flooding the market with liquidity to keep the financial system functioning.
Then, along with rate hikes meant to fight inflation, it sold securities, reducing its portfolio by $1.5 trillion.
Manufacturing activity is slowing faster than expected
The announcements come as U.S. manufacturing activity slowed more than expected in April, falling again under the combined effects of a drop in orders and employment, according to data released Wednesday by the trade union ISM.
The index measuring this activity was at 49.2% last month, compared with 50.3% in March, which marked the first month of growth in activity after 16 months of contractions. It thus falls below the 50% limit, below which activity is in decline. The index is also lower than the expectations of analysts, who expected a small fall but an index in balance of only 50%, according to the consensus published by briefing.com.
“Demand is slowing down a bit, which is reflected in a drop in orders, although the surveyed companies show optimism in their comments,” the head of the ISM survey, Thimothy Fiore, was quoted as saying in the communiqué.
« Demand is still in the early stages of recovery, with continued signs of improving conditions. (…) Among the six main sectors contributing to industrial GDP in April, none has a PMI index below 45% “, he added. A PMI index below 45% is considered by professionals as a sign of weakness in activity in a sector.
For almost two years, the manufacturing industry has suffered from interest rate increases that the central bank – the Fed – has decided to bring down high inflation. Making credit more expensive actually reduces demand. Especially since consumers were also limited in their purchasing power by high prices.
Job creation above expectations
But the strength of the labor market means that rates can be kept high. Private sector companies in the US actually created more jobs than expected in April, but fewer than in March, a figure that was also released this Wednesday. In April, 192,000 private sector jobs were created, according to the monthly ADP/Stanford Lab survey released Wednesday. This marks a decline compared to March, a month in which job creation was revised upwards to 208,000 instead of the 184,000 originally announced. Analysts expected 183,000, according to the Market Watch consensus.
“All sectors hired in April,” said Nela Richardson, chief economist at ADP, adding that “only the information sector — telecommunications, media and information technology — showed weakness, with job losses and the lowest wage increase since August 2021.”
As for wage growth, it remained stable compared to March for those who did not change jobs (+5% over one year), but fell to 9.3% (vs. 10.1% in March) for those who changed jobs.
The official US employment figures for April will be released on Friday, with job creation expected to decline by 240,000 compared to March, and the unemployment rate to hold steady at 3.8%, according to the Market Watch consensus.
Job creation had far exceeded expectations in March, and 303,000 jobs had been created, up compared to February. Unemployment had fallen slightly.
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