The level of uncertainty is “unusually high today,” the President of the American Central Bank (Fed) Jerome Powell said on Wednesday March 19. The federal reserve undoubtedly left its rates unchanged Wednesday, March 19, but degraded its forecasts for the first world economy two months after Donald Trump’s return to the White House.
The markets were massively expected to maintain rates at their current level (in a range between 4.25 % and 4.50 % since December), while the fog dissipates on the effects of the policies of the new American executive. But at the end of two days of meeting, the communication from the Fed shows that its managers are less confident in the health of the American economy. According to the first updating of their forecasts since December, they have anticipated much less sustained gross domestic product growth (GDP), at + 1.7 % at the end of the year (compared to 2.1 % previously expected). They also plan to accelerate inflation at 2.7 % (compared to 2.5 % in December). They also slightly noted the expected unemployment rate at 4.4 % (compared to 4.3 % previously).
Only invariant in forecasts: those responsible always expect overall that the monetary institution decides two drops in rate (a quarter of a point each) this year.
Inflation rebound
Since the previous Fed meeting at the end of January, which had also resulted in a status quo on rates, the panorama has changed singularly. Companies have started to undergo new import taxes, consumers to closely monitor their wallets, and investors to seriously doubt that the United States can go out without damage to the writer triggered by President Donald Trump.
In addition to his climbing, punctuated by reversals, on customs duties, the head of state invested on January 20 launched the billionaire Elon Musk to assault the federal state to cut into spending and melt the number of officials. Until then, faced with a flourishing economy and a low unemployment rate, the Fed had mainly focused on the fight against inflation, still above its target of 2 % (at + 2.5 % over a year in January, compared to the peak of 7.2 % in June 2022, according to the PCE index privileged by the Central Bank).
Specialists now anticipate a rebound in inflation – which in principle implies that the Fed raises its guiding rates to slow it down – at the same time as a cooling of the economy – which pleads for a lowering of rate in order to revive the machine. In the immediate future, “we do not need to hurry and are well placed to wait more clarity,” said Jerome Powell on March 7, closing the door to any variation in short -term rates.
Donald Trump has repeatedly said he wanted to see them down to make credits less expensive for businesses and individuals. The status quo “is the most appropriate policy at the moment, because we do not really know how far customs duties will go and for how long,” said AFP before the decision, the former president of the Fed of Boston Eric Rosengren.
The president’s initiatives have disoriented to the economist Michael Strain, from the Conservative Center for Conservative American Enterprise Institute. Favorable to several sides of his program (tax cuts, deregulation, reduction in the weight of the federal state, etc.), he has just qualified as “disaster” his management of economic policy. “He was previously inconceivable as a president-including Trump during his first mandate-deliberately does so much trouble to the economy,” he wrote on his blog. “Fortunately, Trump inherited a solid economy,” he said, saying that “it would take a lot to plunge the economy into recession” and that the president could still “regain the confidence of investors and consumers” by then.