At the beginning of the year, the American Federal Reserve (Fed, central bank) was still hoping for a soft landing for the economy, a decline in inflation without going through the box of recession. She no longer believes in it herself, since the bankruptcy of the Silicon Valley Bank occurred in mid-March, a victim of its mismanagement and the rise in interest rates.
This is what emerges from the minutes of its meeting of March 21 and 22, published on Wednesday April 12. “Given…recent developments in the banking sector”, the internal services of the Fed foresee “a mild recession starting later this year, with a recovery over the following two years”, can we read in the report. As early as March 22, the central bank warned of the banking crisis, judging it “likely to lead to tighter credit conditions for households and businesses and to weigh on economic activity, hiring and inflation”.
In this context, isn’t it time to stop pressing the brakes on the economy and stop raising rates? Since March 2022, the institution chaired by Jerome Powell has boosted the interest rate from zero to more than 4.75%, an increase of unprecedented speed, and it is considering a further increase by a quarter of point at the end of its next monetary policy committee meeting on 2 and 3 May.
This decision is the subject of public debate among members of the Fed, who do not know how far to strike to eradicate inflation. But the tone remains very harsh, the central bank preferring to do too much than not enough. “The strength of the economy and the high inflation figures suggest that there is still work to be done”, San Francisco Fed President Mary Daly said Wednesday. The day before, John Williams, at the head of that of New York, had estimated that another rate hike was a “reasonable starting point”. More moderate, the boss of the Chicago Fed, Austan Goolsbee called for taking into account the financial context: “We have to be careful. We should collect more data and be careful not to raise rates too aggressively. »
Eradicate inflation which is now in services
The problem is that the macroeconomic figures published for the month of March are reassuring, but still insufficient. Inflation in the United States fell to 5% year on year in March, its lowest level since May 2021, the Bureau of Labor Statistics announced on Wednesday. The decline since the peak of 9.1% reached in June 2022 is major, but this decline is explained by the drop in energy and food prices.
You have 51.05% of this article left to read. The following is for subscribers only.