Home WORLD AMERICA The Fed raises rates by 0.75 points

The Fed raises rates by 0.75 points

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Rates are now in a range between 3% and 3.25%, while inflation is now expected at 5.4% this year, against 5.2% hitherto expected.

The Fed now anticipates almost zero growth for 2022 (+0.2%), against 1.7% forecast in June.

Bank officials estimate they will raise their benchmark rate to 4.4% by the end of the year, a full percentage point higher than what was expected last June.

In 2023, this rate is expected to reach 4.6%, the highest level since 2007.

Inflation still rising

The Federal Reserve’s move follows the release of a government report last week showing that price hikes continued to mount across large swathes of the economy, and that those hikes continued in rents. and other services, even as other factors that normally fuel inflation, such as the price of gasoline, had lost their intensity.

By raising its borrowing rates, the Fed makes it more expensive to take out mortgages, to buy a car, or to finance a business.

Consumers and companies are then expected to borrow and spend less, which would slow the pace of the economy and reduce inflation.

In a press conference, Fed Chairman Jerome Powell said that before the Federal Reserve plans to end their rate hike, they want have firm confidence in the fact that inflation returns to their 2% target.

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Fed officials say they are aiming for a soft landingunder which they would succeed in slowing growth sufficiently to calm inflation, but without exaggerating too much, and thus triggering a recession.

However, more and more economists are saying that the Fed’s high rates will eventually lead to job losses, which will increase the unemployment rate, in addition to triggering a full recession later this year. , or early 2023.

No one knows if this process will lead to a recession, or if so, how big that recession would be.continued Mr. Powell. It will depend on how quickly we manage to reduce inflation.

Jerome Powell at a press conference.

Jerome Powell, Chairman of the US Federal Reserve

Photo: Reuters/Elizabeth Frantz

Unemployment above 4%

In their new economic forecast, Fed officials not only expect near-zero growth for 2022, but also a rise in the unemployment rate by the end of 2023 to 4.4% from 3.7% right now.

Historically, economists say, whenever the unemployment rate has increased by half a percentage point over several months, a recession has always followed.

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The powerful institution has hammered it: the fight against inflation is its priority. Letting it take hold would imply even more painful measures for households and businesses, as was the case 40 years ago, after years of soaring prices, sometimes approaching 15%.

A gas pump gun.

The price of gasoline has stopped rising, even fallen almost everywhere in the United States.

Photo: Reuters/Bing Guan

The US Federal Reserve, like its counterparts around the world, is trying to rein in inflation caused by supply chain disruptions related to COVID-19, and exacerbated by rising energy and oil prices. food with the war in Ukraine.

Many are meeting this week, including Thursday, the Bank of England (BoE) and that of Japan (BoJ). On Tuesday, the Bank of Sweden, the Riksbankhad created the surprise with an unprecedented increase of one point.

In early September, the European Central Bank (ECB) raised its rates by three-quarters of a percentage point, unprecedented.

The Bank of Canada is no exception; it also increased its key rate by three-quarters of a point on September 7, bringing it to 3.25%.

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