Rates rise again in the United States, the Fed continues to target inflation

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US Rates Rise Again, Fed Continues Inflation Targeting

The Fed is still trying to counter inflation by raising rates.

The U.S. central bank on Wednesday raised rates to their highest level in nearly 15 years, and expects to continue to increase them, seeking at all costs to curb high inflation, a task complicated however by the threat of a recession.

The Fed, as expected, raised its key rate by 0.75 percentage point, now between 3.75% and 4%. This is its highest level since January 2008.

And bank officials, meanwhile, say they anticipate further rate hikes will be appropriate , according to a press release issued after the two-day meeting.

They indicate, however, that the effects on the economy of the increases already made since March will have to be taken into account to establish the pace of the increases which will be decided at the next meetings. This could signal slower increases in the coming months.

It takes months for these Fed decisions to have an effect on the economy.

Inflation, for example, was still in September at 6.2% year on year, close to its highest levels in more than 40 years, according to the PCE index favored by the Fed, whose objective is to reduce it to 2%.

Another measure, the CPI index, which is a benchmark for pension indexation in particular, showed an 8.2% year-on-year price increase in September.

Wednesday's policy rate hike is the sixth in a row since March, when it was between 0 and 0.25%, at its lowest to stimulate economic consumption during the crisis. COVID-19 crisis. The Fed had started with the usual 0.25 point hike, before accelerating to 0.50, and finally, four times now, by 0.75 point.

With less than a week to go before the midterm elections, in which President Joe Biden risks losing his slim Democratic majority in Congress, inflation is now the main concern of the American homes.

But another danger threatens, since this voluntary slowdown in activity risks plunging the American economy into recession in 2023.

Jerome Powell had warned at the end of the last meeting in September that there was no painless way to fight inflation sustainably.

Meanwhile, the United States recorded a quarter of growth between July and September, with +2.6% GDP growth at an annualized rate.

As for the job market, it is still showing strong health. The official figures for October will be released on Friday, but we already know that private employers created 239,000 jobs in October, far more than in September, and far more than in September. expected, according to figures released Wednesday.

As we see the first signs of a Fed-induced slowdown in [labour] demand , it only affects certain sectors of the labor market, commented Nela Richardson, chief economist of ADP, quoted in the press release.

The Democrats, who had focused their campaign on the right to abortion, when the Republicans played the card of the fight against inflation, are now trying to put forward their economic program in favor of middle classes.

Democratic Senator Sherrod Brown, Chairman of the Senate Banking Committee, sent a letter to Jerome Powell at the end of October, stressing that the Fed's fight against the x27;inflation must not make workers suffer.

The credibility of the powerful institution is at stake because, after ensuring for months that high inflation would only be temporary, it has so far failed to slow it down.

However, the more households anticipate a lasting rise in prices, the more they act accordingly, and the more this rises. x27;anchor. This then requires even more painful measures, as in the early 1980s, after years of inflation sometimes approaching 15%.

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