Fed raises key rate and expects economy to slow

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On Wednesday, the Federal Reserve raised its main interest rate by three-quarters in an attempt to curb the highest inflation in more than 40 years. This is the largest rise since 1994. She said she expects the economy to slow and unemployment to rise in the coming months.

The US Central Bank (FRB) raised key interest rates by three-quarters percentage points on Wednesday, June 15, to curb higher-than-expected inflation. This is the largest rise since 1994.

“Inflation continues to rise, reflecting pandemic-related imbalances in supply and demand, rising energy prices and broader price pressure,” the Fed said in a statement released. 2 days later. “The Commission is strongly committed to returning inflation to its target of 2%.”

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The president of the US Central Bank (FRB) emphasized that financial institutions are not trying to cause a recession to curb inflation. “Let’s be clear, we’re not trying to cause a recession right now,” Jerome Powell said. “We are trying to reduce inflation to 2% and maintain a strong labor market,” he explained at a press conference. “That’s what we’re trying to do,” he insisted.

“General economic activity has recovered.”

At the same time, the Fed expects US economic growth this year to be as weak as 1.7%, compared to the previous 2.8%. Also, the unemployment rate is 3.7% higher than expected at the end of the year, previously 3.5%, but is expected to reach 4.1% by 2024. In other words, it’s higher than the central bank thinks it will support full employment.

This sharp rate hike was put on the table a few days before the Fed had already raised half a percentage point, such as at its early May meeting. This was already a price increase. The fastest since 2000.

However, the May inflation rate announced on Friday had the effect of a cold shower. Prices have not slowed as they did in April. In 40 years, we set a new record of 8.6% in one year.

“General economic activity has recovered,” the Federal Reserve said after shrinking in the first quarter. “Steady employment growth and unemployment have remained low in recent months.” Stated.

The agency recalls that the invasion and sanctions of Ukraine created “additional upward pressure on inflation and a burden on global economic activity.”

In addition, the Chinese blockade exacerbates supply chain problems. All of this is slowing the US economy.

Lack of expectations for price increases

Controlling inflation without plunging the world’s largest economy into a recession requires special attention.

The Federal Reserve is increasingly struggling to curb inflation because its credibility is at stake. Fed officials have claimed for months that the price increase was temporary, so they began tightening screws only in March.

In an interview with The Wall Street Journal, Jerome Powell admitted last month that “in the future, (…) I should have raised the price sooner.”

Janet Yellen, Minister of Economy and Finance of Joe Biden, also admitted that she did not anticipate such a price increase.

Although the Federal Reserve is independent of the federal government, Jerome Powell was recently welcomed by Joe Biden and Janet Yellen at the White House for a rare interview dedicated to inflation.

High inflation around the world and its impact on the market are concerned that the European Central Bank (ECB) has promised to hold an extraordinary meeting on Wednesday and finally ease sovereign debt tensions. .. Last week, it announced that it would start raising interest rates in July.

AFP and Reuters

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