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The FED, the American central bank, raised its interest rates for the fourth consecutive time in order to cool the economic machine, because inflation is breaking records in the United States and in the rest of the world. This new rise in rates is not without consequences on all the financial markets, because money is more expensive there. Another sharp rise in rates is to be expected in the face of inflation “ much too high “Warned Wednesday, July 27 the President of the FED.
The American central bank (FED) announced on Wednesday July 27 a fourth consecutive increase in its key rates, raising them by three-quarters of a point to place them between 2.25 and 2.50%, and plans to continue this movement in the face of inflation, which remains very high. ” Recent spending and production indicators have slowed. However, job creations have remained robust in recent months, and the unemployment rate is still low “Commented the FED in a press release published after the meeting of its monetary committee (FOMC).
This is the fourth consecutive rate hike: a quarter point in March, half a point in May, and by three-quarters of a point in June – its biggest increase since 1994.
” The monetary committee anticipates that further hikes in key rates will be appropriate “, is it specified in the press release. The American central bank, which usually proceeds by increases of a quarter of a point, hit hard, in an attempt to curb inflation which in June reached a new record for more than 40 years, at 9.1% over one year.
And the monetary committee again ensures that it is “ very attentive to the risks of inflation “. The objective of these rate hikes is to make credit more expensive in order to slow down consumption and investment and, ultimately, to ease the pressure on prices.
The decision was made unanimously by the 12 voting members. The Monetary Committee was complete, with no vacant seats, for the first time since 2013.
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The FED hopes to achieve a “ soft landing “, but the long-awaited economic slowdown to bring prices down could prove too strong, which could weigh on the job market, and even precipitate the first economy in the world into a recession.
Another sharp rise in interest rates to be expected
Another rate hike unusually high could be necessary at the next FED meeting in September, its chairman Jerome Powell warned on Wednesday at a press conference.
Inflation is ” much too high “and the labor market” extremely tense “, he underlined. He stressed, however, that the September decision ” will depend on the data published by then “.
” We’re not trying to cause a recession and we don’t think we need to said Jerome Powell. ” We believe it is possible to bring inflation down while maintaining a strong labor market “, he added
Africa facing the risk of a debt crisis
The key rates had been lowered urgently between 0 and 0.25% in March 2020, to support the economy in the face of the Covid-19 crisis, and remained within this range until last March.
But when US interest rates are up, the rest of the world’s morale is down. Money is more and more expensive, which does not help African countries which currently need to borrow, either to finance their economic transition, their development or their budget.
While a year ago, African countries noted with delight a general drop in the rates at which they borrowed (notably the famous Eurobonds), this improvement did not last long.
In June, the powerful Nigeria had to give up a loan of 950 million dollars, because the conditions were not advantageous enough. This rise in rates also weighs on exchange rates between currencies, which further increases the price of the slate.
Today, 60% of low-income African countries are at risk of over-indebtedness. They were 20% ten years ago. The situation is therefore serious, but not hopeless, underline the economists, as long as global cooperation follows.
The G20 countries which put in place a common framework during the pandemic to help over-indebted African countries manage their debt must now act without delay, underlines the IMF, which points to the risks of contagion from a possible debt crisis.
(With AFP)
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