The American Federal Reserve (Fed) announced on Wednesday that it had lowered its main rates for the third consecutive time, by 25 basis points, bringing them into a range between 4.25% and 4.50%, in line with market expectations. markets.
A decision which, however, was not unanimous among the members of the institution’s Monetary Policy Committee (FOMC), one of its members, Beth Hammack, speaking out against a further reduction in rates.
Nor among analysts, who question the advisability of such a decline, given that inflation has started to rise again over the last two months in the United States, after having followed an encouraging trajectory towards the objective of 2% per year set by the Fed.
But the institution is “getting very close” to the end of its decline cycle, assured Fed President Jerome Powell, assuring that the FOMC will be “more cautious regarding possible future rate cuts.”
“Inflation has slowed significantly over the last two years but it remains relatively high compared to our long-term objective of 2%,” he admitted, while the institution now forecasts a PCE index at 2.5 % at the end of 2025 and a return to 2% by the end of 2026 only.
The other consumer price index, the CPI – on which pensions are indexed – rebounded in November to 2.7% over one year. The PCE inflation index, which the Fed wants to reduce to 2%, will be published on December 20.
On the producer side, prices even climbed in November to their highest level in almost two years, due in particular to the consequences of avian flu, according to the PPI index.
But the Fed now plans to move more slowly, considering only two rate cuts for 2025, of 25 basis points each.
“We are getting very close to the neutral rate”, that is to say the interest rate having no effect, to support or slow it down, on the economy, estimated Mr. Powell.
And the Fed’s forecasts seem to support analysts’ questions: the central bank does not expect inflation to return to its target of 2% before the end of 2026 from now on. It even significantly revised its inflation forecast for 2025, which it now expects to be around 2.5%, whereas it hoped to bring it down to 2.1% during its previous forecast, in September.
Persistent inflation which should not, however, weigh on economic activity, since the Fed now expects growth of 2.1% for 2025 (compared to 2% forecast three months earlier), with an unemployment rate which remains low and almost stable, at 4.3%, just 0.1 percentage point more than this year.
Uncertainty ahead
Jerome Powell recently estimated that the Fed “could afford to be a little more cautious” due to the strength of economic activity. And one of the governors, Michelle Bowman, judged the risks linked to inflation “more significant” than those linked to unemployment.
The governor has also estimated on several occasions that the neutral rate, that is to say the one which has no influence, supporting or slowing down, on economic activity, could be higher than initially expected. and perhaps even close to the current level.
But it will also depend on the economic policy put in place by President-elect Donald Trump, who will return to the White House from January 20.
However, between the promised deregulation in terms of standards, the desired expulsion of a portion of migrants who entered the territory illegally, the tax cuts or even the increase in customs duties, the effects on the economy could be major and are difficult to predict as they stand.
Fed leaders “are not here to prejudge the effects of these policies, but they will have to take into account the possible effects. This government’s proposals can cause a shock to both supply and demand and there is a whole range of possible consequences of these shocks”, judges Mr. Sheets.
According to a survey of 500 American companies by the recruitment company Resume Templates, 82% of them plan to increase their prices if new customs duties are actually put in place.
Donald Trump has already announced customs duties of 25% against his neighbors Canada and Mexico, which could push prices up for the American consumer.
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