It was fireworks on Wall Street: the Nasdaq, the tech-rich index, jumped 4.06% on Wednesday July 27, while the S&P 500, which represents large American companies, rose 2.62%: in question, the reassuring words of Jerome Powell, the president of the Federal Reserve (Fed, central bank) on the national economy, which give hope that the worst of inflation is over and that the recession can be avoided.
The monetary policy committee decided to increase as expected, and for the second time in a row, the Fed’s key rates by 0.75 points. The short-term interest rate is now in a range between 2.25% and 2.5%, having been just above zero in March and has been since the start of the coronavirus pandemic. Covid-19. “The labor market is extremely tight and inflation is far too high”Mr. Powell explained.
However, the president of the institution did not rule out slowing the pace of monetary tightening. “At some point, you have to slow down. We could make another unusually large increase [en septembre], but it is not at all a decision that we have taken. We’re going to be data driven. » By the next meeting in September, the central bank will have unemployment and inflation figures for August and September. It will then be able to know if it can slow the credit crunch.
The markets anticipate that the price surge will subside on its own, since ten-year rates are only 2.8%, while inflation is above 9%. Long rates had reached 3.5% in June, at the worst of concerns, when the May figures were published, just before the previous Fed meeting.
Some positive signals are appearing: the cost of raw materials, in particular energy, is falling – that of a gallon of gasoline (3.8 litres) is now only 4.30 dollars (4.20 euros), after having exceeded 5 dollars. The price craze in air transport is fading. There is no inflation-salary spiral in the United States, which undermines purchasing power, but gives hope of getting out of inflation.
Above all, Mr. Powell noted a cooling in demand: American consumers, whose morale is at an all-time low, have reoriented towards basic products. They draw on their savings, affected by the fall in the stock market and the end of federal aid programs linked to the health crisis. The real estate market is about to turn around, due to the rise in mortgage rates. That of employment is rebalancing slightly in favor of businesses. Finally, corporate investment seems to have declined in the second quarter.
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