inflation and a still tight job market lead to pessimism, according to the Fed

inflation and a still tight job market lead to pessimism, according to the Fed
inflation and a still tight job market lead to pessimism, according to the Fed

In the United States, the Fed is blowing hot and cold. On the one hand, the central bank notes in its “Beige Book”, after a survey carried out among companies and economic players, that “ economic activity continued to grow from early April to mid-May “. However, she specifies that “ conditions vary by sector and region “. On the other hand, the authority emphasizes that “ the outlook has become somewhat more pessimistic due to reports of increasing uncertainty and greater downside risks “.

The American economy, in fact, remained surprisingly resilient in 2023, and the slowdown in inflation during the last months of the year raised hopes of a rate cut, which was a Source of optimism. But a rebound in prices in early 2024 led the Fed to push back this prospect. At the end of March, its president, Jerome Powell, in fact estimated that inflation still remained too “ high » in the United States, highlighting the strength of the job market.

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Thus, at the end of its next meeting on June 11 and 12, the Fed should maintain its rates in the range of 5.25 to 5.50% in which they have been since July 2023, their highest level for more than 20 years. During a meeting of officials of the monetary institution on April 30 and May 1, “multiple participants” even said they were ready to raise rates again “if inflation risks materialize in such a way that such a measure becomes appropriate”, according to the minutes (the minutes) of the members of the Monetary Policy Committee (FOMC), the decision-making body of the Fed.

Consumer confidence deteriorated sharply in May

Good news in April, however, the rise in consumer prices resumed its downward trajectory, to 3.4% over one year compared to 3.5% in March, according to the CPI index. Businesses ” in most regions noted that consumers resisted further price increases, leading to shrinking profit margins “, underlines the “Beige Book”. “ A Montana restaurant and hotel owner tries to avoid passing on new cost increases to customers “, reports the Fed, quoting him: “ At some point they’ll say, ‘I’m not paying $20 for a hamburger.’. In New York, hotel prices have stopped soaring, but rates “ are significantly higher than before the pandemic “, that ” many visitors compensate (…) with a reduction in purchases and catering “.

Tensions on the job market are easing slightly

Consumer confidence also deteriorated sharply in May in the United States, falling to its lowest level since November. The index fell to 69.1 points, from 77.2 points in April, the University of Michigan said Friday, releasing its final estimate. Analysts expected an even stronger deterioration, to 67.6 points, according to the Market Watch consensus.

American consumers were particularly pessimistic about the economic situation for the coming year. They have ” expressed particular concern about the labor market “, because ” they expect the unemployment rate to rise and income growth to slow », Commented the head of the investigation, Joanne Hsu, quoted in the press release. In April, the unemployment rate increased slightly, from 3.9% compared to 3.8%, due to a slowdown in the job market with 175,000 jobs created last month, compared to 315,000 in March, according to figures published by the Department of Labor.

United States: the job market is slowing, good news for the Fed

However, the tensions observed in recent years remain even if they are slowly being resolved, and the situation is not homogeneous. “ The majority of regions reported greater labor availability, although some shortages remain in certain sectors or areas » underlines, in fact, the Fed. The movement called “ Great resignation » linked to the labor shortage after the Covid-19 pandemic, nevertheless seems to be over.

Furthermore, “ the prospect of continued high interest rates also weighed on consumer opinion », specified Joanne Hsu, referring to “ a risk of a drop in consumer spending “.

(With AFP)

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