The break is over. The US central bank (FED) is expected to tighten the monetary screw again on July 26 by raising key interest rates again. Economic analysts expect an increase of 25 basis points.“Since the mid-June meeting, in which the Fed did not change its monetary policy, Jerome Powell and his colleagues have repeatedly said that the cycle of policy rate hikes was not over. Another rate hike, the eleventh since March 2022, is widely expected on July 26., explained Bruno Cavalier, chief economist at ODDO BHF. The decision will be announced on Wednesday at
10 increases since spring 2022
Rates were at zero to stimulate the economy during the Covid crisis, until March 2022, when the Fed began raising them, in the face of inflation at its highest level in more than 40 years. It made ten hikes before pausing at its last meeting in mid-June, keeping rates in the 5.00 to 5.25% range, to take time to observe the effects of those hikes and avoid plunging the economy into recession.
At the same time, inflation fell from 9.1% in June 2022 to 3% a year later. “This inflation comes mainly from the correction of supply shocks from the pandemic, which monetary policy has no direct influence on. So should we credit the Fed for the drop in inflation? The question touches on the delicate question of the impact of monetary policy on the real economy.”added the economist in a note released on Friday, July 21.
The ECB also decided to raise its interest rates
The ECB in June expressed its willingness to send a “strong signal” on inflation and continue the “gradual tightening” of credit valves, suggesting more rate hikes will follow, according to the minutes of its meeting published on Thursday. “We think the minutes were pretty definite,” Ebury analyst Matthew Ryan said, noting that at the time of the June meeting, ECB chiefs believed the market was underestimating their willingness to raise rates after July. In the euro area, the risk of prolonging the current recession is much greater than in the US. The new austerity could accelerate the economy of the Old Continent to sluggish growth.
(With AFP)
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