The president of the US Central Bank is expected to announce a slight decline in interest rates Wednesday against a less favorable environment. Jerome Powell will also have to explain the problems faced by large banks and companies to find cash.
The wait for the interest rate decision was clouded by dysfunctions on the money markets that forced the Fed to massively inject liquidity twice in 24 hours.
We must go back to the financial crisis of 2008 to find such an intervention.
Through the New York Fed, the institution injected $ 75 billion Wednesday after the $ 53 billion the day before through its tool for overnight repo (repo).
For technical reasons, the liquidity market has dried up since Tuesday.
This has caused a rise in rates on very short-term repo contracts well above the overnight interest rates, which are the main monetary tool of the Central Bank, and are currently at 2-2.25 %.
Several factors, including a strong demand for dollars from companies on the verge of paying a tax deadline, have caused these tensions.
The intervention of the New York Fed preceded the resumption of a monetary meeting in Washington after which Jerome Powell is expected to announce a slight decline in overnight rates, a quarter of a percentage point, s agree economists.
"The Monetary Committee meeting resumed at 9:00 am local time (13:00 GMT) as planned," said a spokeswoman for the Fed.
A large majority of financial players (63.5%) expected Wednesday this second rate decline in two months, according to the evolution of futures products followed by CME Group.
The day before, amid fears over the impact of the attacks on oil facilities in Saudi Arabia and the lack of liquidity on the money markets, investors had doubted for a moment that the Fed could go ahead in lowering its rates.
- Explanation -
Jerome Powell is scheduled to hold a press conference at 1830 GMT after the release of the Monetary Committee's communiqué and new economic forecasts. It will undoubtedly be questioned about the quack in the liquidity market.
And if everyone believes that because of the strong uncertainties that hang over the US economy, it will be difficult for Jerome Powell to give specific clues as to what he plans to do next, "that does not change the fundamental need for lower rates by a quarter of a point on Wednesday, "Oxford Economics Chief Economist Kathy Bostjancic told AFP.
At his late July press conference following a rate cut - the first in more than a decade - Jerome Powell had seemed to hesitate between assurances that one would not expect a long rate cuts while suggesting that it was also not an isolated gesture.
Since then, economic data have continued to be mixed.
Inflation - excluding food and oil - has risen to almost 2.4% in August, according to the CPI index.
This trend that goes in the right direction for the Fed remains to be confirmed.
The manufacturing sector, which had been down for several months, rebounded in August, but may not last.
Trade tensions and tariffs remain a sword of Damocles for companies and their investments. However, a moderately optimistic wind has been blowing for some time with the prospect of a session of high-level talks between the United States and China to be held in Washington in early October.
"Will the trade war be resolved or continue? It is quite possible that it will last another year," warned an economist at the Peterson Institute for International Economics. "If this is the case, it will weaken investment (...) and justify another fall or two in the fall," adds for AFP this former Fed economist, Joseph Gagnon.
US overnight rates between 2 and 2.25% are far from the zero or negative rates in the eurozone and Japan, which makes Donald Trump trample on zero or even negative rates for the dollar and exports remain competitive.
But if it is decided as expected, Wednesday's decline will set rates just below 2%. Two members of the Monetary Committee, who voted against the July rate cut, may reoffend, saying the economy does not need this stimulus.
© 2019 AFP