The U.S. central bank raised rates a quarter point on Wednesday at its first meeting of the year, a slower pace from previous hikes. Inflation remains high, but shows signs of moderating, as does economic activity.
“Inflation has slowed a bit but remains elevated,” the Fed’s monetary policy committee, the FOMC, said in its statement. In addition, “recent indicators show moderate growth in spending and production,” said officials of the monetary institution.
In the wake of this decision, the euro rose sharply once morest the dollar, reaching its highest level for almost ten months and brushing the symbolic threshold of 1.10 dollar.
The move came despite statements from Fed Chairman Jerome Powell who said he expected “several additional rate hikes” in the coming months, a sign that monetary tightening is set to continue.
“We are talking regarding a few more rate hikes to get to the level that we think is restrictive enough,” he added at a press conference, stressing that “inflation remains high”, and that the tightening of monetary policy take time to have their full impact.
The eighth rise
With this eighth hike in a row, the Fed’s rates, which were at zero just a year ago, are now in a range of 4.50 to 4.75%, following a decision taken unanimously .
This increase of a quarter of a percentage point, however, marks a return to a more usual level of increase, following particularly strong increases of half a point and even three-quarters of a point.
The objective of rate hikes: to push banks to raise interest rates on loans to households and businesses. To try to curb inflation, which in June had reached its highest level in more than 40 years, it was necessary to slow down consumption to prevent prices from continuing their dizzying escalation.
But with consumption driving the US economy, too much tightening might lead to a recession. For Pierre-Olivier Gourinchas, chief economist of the International Monetary Fund (IMF), who published new forecasts on Tuesday, there is however still “a narrow possibility” for this scenario to be avoided.
ats/exercise
