The decision was taken unanimously. On Wednesday May 3, the US Central Bank decided to raise its main policy rate by a quarter of a percentage point for the tenth time in a row. It is now in a range of 5 to 5.25%, the highest since 2006.
Many market players are now waiting for a break in these rate hikes, which increase the cost of credit for households and businesses, and, by slowing down economic activity, should make it possible to ease the pressure on prices.
Although a pause in hikes was not formally considered at that meeting, according to Federal Reserve Chairman Jerome Powell, he pointed out that the language of the statement had changed in tone. The Fed no longer indicates that it anticipates additional hikes. It’s “a significant change,” he said.
Fed officials say they will watch the effects of successive decisions, and the time with which they affect the real economy, as well as “economic and financial developments”, to decide whether to tighten further. , to bring inflation down to 2%, its target. The Fed chief judged that the Fed’s monetary policy is now “restrictive”, that is to say that it prevents economic activity from continuing to overheat.
However, “no decision on a break was made today,” he warned. Support for a quarter-percentage-point hike “was very strong within the committee,” he said. “People have talked about a break, but not so much for this meeting.” And no rate cuts are on the cards before the end of the year because inflation “is not going to come down quickly,” Powell said.
Convera Financial Services analyst Joe Manimbo said, “The Fed’s statement gives policymakers complete flexibility to suspend rate hikes or pursue others, depending on inflation developments and the risks facing the Fed.” economy is facing, such as the continued instability of some regional banks”.
The banking crisis provided unexpected support for the Fed’s fight against inflation: “tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation “, warns the Fed in its press release, hammering that “the American banking system is solid and resilient”.
The fragility of certain banking establishments came back to the fore with the fall of the regional bank First Republic, finally bought over the weekend by JPMorgan Chase, the number one in the sector. Concern over the strength of these mid-sized banks remains strong, with several still falling slightly on Wall Street after falling sharply the day before.
