The Fed ready to gradually put away its anti-crisis tools, despite persistent risks

Jerome Powell at a press conference in Washington on October 30, 2019 (AFP / Eric BARADAT)

The US Central Bank (Fed) signaled on Wednesday that it may “soon” begin to reduce monetary support to the economy, although the recovery has been slowed by the Delta variant, and growth is expected as a result. , weaker than expected this year.

The monetary institution wants to gradually withdraw from the American economy the crutch that helped it get through the crisis.

And it gave, at the end of the meeting of its Monetary Committee, a signal that was eagerly awaited by the markets, indicating that the pace of asset purchases could “soon” begin to decline, “if progress ( economic) continue “.

The announcement of the schedule to be made at the next meeting on November 2-3, and the reduction to begin the same month, analysts anticipate.

The $ 120 billion in treasury bills and other securities that the Fed has bought every month since the start of the crisis will gradually decline, to zero.

On the other hand, the key rates, maintained Wednesday in the range of 0 to 0.25% in which they were lowered in March 2020, should remain there for a while.

“As long as you buy assets … there is no point in raising rates,” Fed Chairman Jerome Powell said at a press conference.

This increase, which will increase the cost of credit, which is currently historically low, when the economy resumes its cruising speed, could occur as early as 2022, according to forecasts by members of the Monetary Committee.

– “Risks” –

The tightening of monetary policy therefore seems imminent, despite growth which should be lower than expected, and inflation, on the contrary, higher.

The Fed has indeed lowered its growth forecast for the gross domestic product (GDP) of the United States for 2021: it is now expected to increase by 5.9%, against 7% in the latest forecasts of the Fed, published in June.

But the delay should then be made up, since growth forecasts have on the other hand been raised for the following years, to 3.8% in 2022 and 3.5% in 2023.

The sectors most affected by the pandemic, in particular the hotel and catering industry, have recorded improvements in recent months, “but the increase in Covid-19 cases has slowed their recovery,” the powerful said in a statement. institution.

And “risks remain for the economic outlook”, has also warned the Central Bank.

The Fed building in Washington on August 6, 2021 (AFP / Daniel SLIM)

The Fed building in Washington on August 6, 2021 (AFP / Daniel SLIM)

Inflation, on the other hand, is expected to be higher than expected, reaching 4.2% in 2021, against 3.4% previously expected. It should then stabilize a little above the 2% target the Fed is aiming for, at 2.2% over the next two years.

The Monetary Policy Committee thus underlined in its press release that “inflation is high, largely reflecting transitory factors”.

Jerome Powell, however, warned that prices could continue to climb longer than expected, as the reopening of the economy continues “to face bottlenecks, hiring difficulties and other constraints, which could s ‘prove to be more important and more sustainable than expected “.

– Groping –

On the employment front, the recovery is difficult. The unemployment rate is now estimated at 4.8% (+0.3 points) for 2021, before falling back to 3.8% next year and returning to its pre-pandemic level in 2023.

And a new shadow now hangs over the American economy, and, by extension, the world economy: that of a default by the United States, if the debt ceiling is not raised or suspended by Congress by the end of October.

The head of the American Central Bank stressed Wednesday that it was “very important” to raise the debt ceiling “as soon as possible so that the United States can pay its bills”.

“This is critically important,” said Jerome Powell as Republicans refuse to give their endorsement yet.

“Failure to do so could lead to serious backlash, serious damage to the economy, to financial markets and that is just not something we should be considering,” he added.

The other major central banks are also groping forward on monetary tightening. The European Central Bank (ECB) timidly launched the movement, while the Bank of England is still patient, for fear of stifling the recovery.

On the other hand, several emerging countries – Brazil, Russia, Mexico, … – have already, faced with inflation, raised their interest rates.