the Fed raises its rates again and warns against the risk of recession

the Fed raises its rates again and warns against the

A new increase in interest rates in the United States. The Federal Reserve, called the Fed, announced on Wednesday, September 21 to increase its rates by three quarters of a point, ie the third tightening in a row, its main key rate now standing between 3.00 and 3.25%. But to deal with galloping inflation, the institution has warned that it is probably not over: it will have to tighten its monetary policy further, which could prove painful for households.

With our correspondent in Washington, Guillaume Naudin

Interest rates from the US central bank are now above 3%, the level of the 2008 crisis. This while they were still at their historic lows at the start of the year.

The reason of this particularly aggressive Fed policy, it is still and always the fight against inflation that remains stubbornly strong. Jerome Powell, the head of the institution, is trying to bring it down as quickly as possible, at the cost of downward growth forecasts. He admits: it can be painful for the economy.

Higher rates, slower growth and a less buoyant labor market are painful for the people we servesays Jerome Powell. But it is less painful than failing to restore price stability and then having to return to it. If the concept of high inflation begins to creep into the minds of people making their economic decisions, then the cost of restoring price stability only increases. And so we want to avoid that. We want to act aggressively now to get this job done and stick with it until it’s done. »

Jerome Powell announces more rate hikes by the end of the year. But he hopes that they will be less important if prices go in the expected direction.

External values to which central banks must respond

Despite attempts to control these increases, this inflation has causes external to central and private banks: it is the pandemic and the war in Ukraine that are causing commodity prices to soar. So central banks are trying to slow down demand to adjust it to an offer that no longer has the means to satisfy demand “, explains the economist Veronique Riches Flores. Central banks have no other choice and must act to try to stem demand:

According to economist Veronique Riches Flores, the Fed is raising rates to “slow down demand and adjust it to supply”

The Fed has also updated its forecasts for the American economy, and now forecasts almost zero GDP growth in 2022 (+0.2%), when it was counting, in June, on +1.7%. For economist Veronique Riches Flores, the prospect of a recession in the United States is a risk considered necessary to overcome this inflation.

According to economist Veronique Riches Flores, a recession in the United States is a “necessary” risk to curb inflation