The Fed's main interest rate is now in a range of 5.00 to 5.25%, the highest since 2006, a decision taken unanimously, the institution announced in a statement issued after the meeting of its monetary policy committee (FOMC).

Fed Chairman Jerome Powell will hold a press conference at 14:30 (18:30 GMT).

Many market participants are now waiting for a pause in these rate hikes, which raise the cost of credit for households and businesses, and, by slowing economic activity, should help ease price pressure.

Fed officials, in the statement, appear less firm on future rate hikes than in previous meetings. They specify that they will observe the effects of successive decisions, and the time frame with which they have an effect on the real economy, but also "economic and financial developments", to decide whether or not to tighten further, in order to bring inflation down to 2.00%.

This marks a change in tone from previous meetings, when they anticipated the need to continue raising rates.

The banking crisis has provided unexpected support for the Fed's fight against inflation: "the tightening of credit conditions for households and businesses is likely to weigh on economic activity, hiring, and inflation," said the Fed in its statement, hammering that "the US banking system is solid and resilient".

Signs of shortness of breath

And, while it was still resisting, the US economy is multiplying the signs of running out of steam, long awaited and finally visible.

Last week, first-quarter growth came in at 0.3% compared to the last three months of 2022 and at just 1.1% annualized. And the probability of a recession, sharper than initially expected, is widely anticipated by the markets.

Jerome Powell at a press conference in Washington on March 22, 2023 © OLIVIER DOULIERY / AFP

"Our data suggest that monetary tightening and recent tensions in the banking system will lead to a mild recession, stronger than we had anticipated so far," Oxford Economics chief economist Ryan Sweet told AFP.

The fragility of some banking institutions has returned to the forefront with the fall of the regional bank First Republic, finally bought over the weekend by JPMorgan Chase, the number one in the sector.

Concern about the strength of these medium-sized banks remains strong, several of them saw their stock fall Tuesday on Wall Street.

"Fear is back"

"Fear is a very powerful feeling on Wall Street. When he walks in through the door, logic comes out the window," said Adam Sarhan of 50 Park Investments.

"The Fed needs to look at 'these banking woes' as a game-changing event," said Karl Haeling of LBBW, and no longer see banks as bearing the brunt of "isolated cases of mismanagement."

Because these banks suffer in particular from the rise in rates, which set the cost of the money that institutions lend to each other on a day-to-day basis. It has gone in just over a year from a range between 0 and 0.25% to values between 4.75 and 5% now.

However, while inflation fell sharply in March, core inflation (excluding food and energy prices) barely slowed and is now higher than inflation itself.

Jerome Powell, as Jerome Powell has been repeating for months, bringing US inflation back to its 2% target will be a long and difficult effort but necessary because inflation that is long-term would have even more harmful consequences for the economy, according to him.

Between May and December, the Fed raised rates at a pace not seen since the early 1980s, opting for two unusual half-point increases, and even, on four occasions, three-quarters of a point.

© 2023 AFP