Pace of interest rate hikes could pick up again, warns Powell | Monetary policy

The unexpectedly high level of inflation in January and the continued strong performance of the economy may force the US Federal Reserve to once again increase the pace of interest rate hikes, making them reach a maximum level higher than until foreseen here, announced this Tuesday the president of the institution.

In a speech made to the US Congress, Jerome Powell noted that “the most recent economic data came out stronger than expected”, stating that “this suggests that the final level of interest rates should be higher than what was anticipated ”.

This was the first time that the chairman of the Federal Reserve had spoken in public since the inflation and unemployment data for January were released, which revealed that the US economy did not perform, despite the sharp rise in interest rates put into practice. in recent months, major signs of cooling.

Prices in January rose by 0.5% (0.1% in December) and the year-on-year inflation rate stood at 6.4%, slightly below the 6.5% in December, but above the 6.2% that were on average projected by analysts. In the labor market, another 517 thousand jobs were created, a number that was also clearly above expectations.

These two indicators make fears that the economy is overheated rise again within the Federal Reserve. The performance of the labor market, with very low levels of unemployment, may lead to inflationary pressures generated by wage increases.

Since March of last year, the Fed has already raised its main reference interest rate by 4.5 percentage points – the fastest series of hikes in its history. Between June and November, the US monetary authority made four consecutive rises of 0.75 points. In December, the rate of increase slowed down to 0.5 points and in February to 0.25 points, at a time when signs of a retreat in inflationary pressures were clearer.

What was expected for the March 21st and 23rd meeting was, until now, another rise of 0.25 points, but Jerome Powell’s statements make the probability of a rise of 0.5 points now higher.

In addition, the maximum level that the Fed is expected to reach also risks being revised upwards. The expectations of those responsible for the Federal Reserve were, on average, that interest rates would reach 5.125%.

The markets’ reaction to the signals given by the chairman of the Fed was, unsurprisingly, one of concern in view of the expectation of an increase in the financing costs borne by families and companies in the US to higher levels. New York Stock Exchange indices fell, US public debt interest rates rose and the dollar gained ground against the euro.

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