The Fed considers the decline in inflation too slow, but rules out a new rate hike – 02/05/2024 at 08:10

The Fed considers the decline in inflation too slow, but rules out a new rate hike – 02/05/2024 at 08:10
The Fed considers the decline in inflation too slow, but rules out a new rate hike – 02/05/2024 at 08:10
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Fed Chairman Powell speaks at a news conference in Washington

The American Federal Reserve (Fed) maintained its rates at their current levels as expected on Wednesday, citing more persistent inflation than expected but ruling out the hypothesis of a further rise in rates, and also announced a slowdown in the pace of its quantitative tightening.

“It will probably take more time for us to be sure that inflation returns to its 2% target,” explained Fed Chairman Jerome Powell during a press conference organized at the end of the institution’s monetary policy meeting.

In the press release accompanying its decision, the Fed cited the “lack of progress” in reducing inflation, while several data have surprised on the rise in recent months.

The US central bank reiterated its data-driven approach, with Jerome Powell explaining that “the indicators will have to tell us whether the terminal rate is reached.”

However, the Fed boss ruled out the possibility that the next decision on rates would consist of an increase, describing this prospect as “unlikely”.

“We are instead focusing on the length of time monetary policy must be maintained at a restrictive level,” explained Jerome Powell, emphasizing that monetary policy was at a restrictive level.

“I expect to see inflation decline this year, although I am less confident about it,” he added.

ECONOMIC SITUATION

The American central bank also cited the resistance of labor markets.

“We see a fairly consistent slowdown in the pace of wage growth, but there is still a way to go,” noted Jerome Powell.

The Fed has a dual mandate relating to inflation and unemployment. This second objective is once again being monitored by the monetary policy committee, after a period during which inflation had its full attention, said the head of the Fed. It would take a “significant” deterioration in employment to convince the institution to change its monetary policy outlook, he said.

Recalling that American growth remained strong and that he saw no risk of ‘stagflation’, characterized by low growth and high inflation, Jerome Powell stressed that the Fed had “the luxury of being able to be patient” on its rates. .

He also stressed that the American elections would not influence the Fed’s decisions.

QUANTITATIVE TIGHTENING

The Fed also announced a reduction in the redemption ceiling for US Treasury bonds from June 1, which will go from the current $60 billion to $25 billion.

“This will reduce the risk of stress on the monetary markets,” Jerome Powell explained at a press conference.

The shift will slow the pace at which the Fed’s balance sheet shrinks, with the volume of assets held by the central bank hitting a record $9 trillion in 2022 to absorb the shock of the COVID pandemic.

If such a decision was expected from the markets, uncertainty remained over the date of the announcement.

(Howard Schneider; French version Corentin Chappron, edited by Jean Terzian)

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