The Fed, as expected, raised its key rate by 0.75 percentage point, now between 3.75 and 4.00%.

This is its highest level since January 2008.

And officials of the institution, moreover, say they anticipate "that further rate hikes will be appropriate", according to a press release issued after two days of meetings.

They indicate, however, that the effects on the economy of the increases already made since March will have to be taken into account to establish the pace of the increases that will be decided upon at the next meetings.

This could signal slower increases in the coming months.

It takes months for these Fed decisions to have an effect on the economy.

Inflation, thus, was still in September of 6.2% over one year, close to its highest levels for more than 40 years, according to the PCE index favored by the Fed, whose objective is to bring it back to 2%.

Another measure, the CPI index, which refers in particular to the indexation of pensions, showed a price increase of 8.2% over one year in September.

The hike in the key rate decided on Wednesday is the sixth in a row since March, when it was between 0.00 and 0.25%, at its lowest level in order to stimulate economic consumption during the Covid-19 crisis. .

The Fed had started with the usual increase of 0.25 points, before accelerating to 0.50, and finally, four times now, by 0.75 points.

The Fed's key rate Patricio ARANA AFP

Less than a week before the midterm elections, during which President Joe Biden risks losing his weak Democratic majority in Congress, inflation is now the main concern of American households.

But another danger threatens, since this voluntary slowdown in activity risks plunging the American economy into recession in 2023.

"First signs" of slowdown

Jerome Powell had warned, at the end of the last meeting, in September, that there was no "painless way" to fight inflation durably.

In the meantime, the United States recorded a quarter of growth between July and September, with +2.6% GDP growth at an annualized rate.

As for the employment market, it still displays iron health.

Official figures for October will be released on Friday, but we already know that private employers created 239,000 jobs in October, much more than in September, and much more than expected, according to figures released Wednesday.

“While we are seeing the first signs of a Fed-induced slowdown in (labour) demand, this is only affecting certain sectors of the labor market,” commented Nela Richardson, chief economist at ADP. , cited in the press release.

The Democrats, who had focused their campaign on the right to abortion, when the Republicans played the card of the fight against inflation, are now trying to put forward their economic program in favor of the middle classes.

Democratic Senator Sherrod Brown, Chairman of the Senate Banking Committee, sent a letter to Jerome Powell at the end of October, stressing that "the Fed's fight against inflation should not make workers suffer".

The credibility of the powerful institution is at stake because, after ensuring for months that high inflation would only be temporary, it has so far failed to slow it down.

However, the more households anticipate a lasting rise in prices, the more they act accordingly, and the more it becomes entrenched.

This then requires even more painful measures, as in the early 1980s, after years of inflation sometimes approaching 15%.

© 2022 AFP