During its meeting next Tuesday and Wednesday,

The Federal Reserve is facing a difficult equation to curb inflation without falling into a recession

Raising interest rates would control demand and slow price increases.

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Next Tuesday and Wednesday, the US Central Bank will face a difficult equation related to interest rates, and to what extent they should be raised during the current year, to contain inflation without plunging the largest global economy into recession.

Raising interest rates would control demand and slow price increases.

Last March, the US Federal Reserve proceeded to cautiously raise these rates, with an increase of 0.25% that was the first since 2018. At the conclusion of a two-day meeting, this time the Monetary Policy Committee is expected to approve a 0.50% increase.

And the Federal Reserve Chairman, Jerome Powell, had personally announced that this increase “will be on the table.”

He said during a seminar for central bank governors, on the sidelines of the International Monetary Fund meetings, that "it is very necessary to stabilize prices and raise interest rates quickly."

Some Federal Reserve officials went as far as stressing the need to adopt a gradual policy in the face of persistently rising inflation and a labor market that is witnessing tension.

Some are calling for the adoption of similar increases during the next meeting of the US Federal Reserve in June.

Action has become an urgent necessity, while inflation, exacerbated by the Russian-Ukrainian war, is at its highest level since the early eighties of the last century.

The PCE index, which is approved by the Federal Reserve as a benchmark, showed a 6.6% increase in prices in March at an annual rate.

The other CPI index, which adopts a different method of calculation, showed that inflation reached 8.5%, the highest increase since December 1981. Officials of the American financial institution find themselves on a tightrope.

Parallel to inflationary pressures fueled by the recent closures in China, which exacerbated the problems of global supply chains, growth is slowing in the world.

The tools available to the US Federal Reserve are among the most effective to control demand and subsequently slow down the pace of inflation.

In addition to interest rates, the US Central Bank is expected to approve the start of reducing huge debt purchase plans, which is another major stage in returning the situation to normal.

Federal Reserve officials must strike a delicate balancing act, by calming rather than reining in demand, because consumption remains the main driver of US growth.

The US GDP declined by 1.4% during the first quarter of this year.

However, Gregory Dako, chief economist at EY Parthenon, believes that this does not entail a change in the direction of the US central bank, pointing to very strong internal demand.

He stressed that "Americans travel despite the fact that travel tickets are expensive, and they go to cinemas and theaters, while restaurants are full."

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