The US central bank (Fed) raised its key interest rates by three-quarters of a percentage point on Wednesday, June 15, the largest increase since 1994, in an attempt to control higher-than-expected inflation.

“Inflation remains elevated, reflecting supply-demand imbalances related to the pandemic, rising energy prices and broader price pressures,” the Fed said in the statement released. after two days.

"The Committee is strongly committed to bringing inflation back to its 2% target."

“General economic activity has rebounded”

At the same time, it anticipates weaker than expected economic growth this year in the United States, at 1.7%, against 2.8% previously.

It also expects the unemployment rate to be higher than expected at 3.7% at the end of the year, against 3.5% previously, then 4.1% by 2024, i.e. a level higher than what the central bank considers to correspond to full employment.

This sharp rate hike was put on the table only a few days ago, when the Fed had previously been pricing in a half-percentage-point hike, like at its meeting in early May, which was already the raise. the fastest since 2000.

But the inflation figures for May, published on Friday, had the effect of a cold shower: the rise in prices has not slowed down, as it had been the case in April.

It even reached a new record in 40 years, at 8.6% over one year.

“General economic activity has rebounded” after contracting in the first quarter, the Fed noted, citing “robust job gains in recent months and an unemployment rate remaining at a low level”.

The institution recalls that the invasion in Ukraine and the sanctions have created "additional upward pressure on inflation and weigh on global economic activity".

Additionally, the lockdowns in China have exacerbated supply chain issues.

All of this is slowing down the US economy.

A lack of anticipation of rising prices

Controlling inflation without plunging the world's largest economy into recession is proving particularly tricky.

The Fed is struggling all the more to control inflation as its credibility is at stake. Its officials have maintained for months that this rise in prices would only be temporary, and therefore began to tighten the screws only in March.

"With hindsight, (...) it would probably have been better to raise the rates earlier," admitted Jerome Powell last month, during an interview with the Wall Street Journal.

Joe Biden's Minister of Economy and Finance, Janet Yellen, also admitted that she had not anticipated such a price increase.

The Fed is independent from the federal government, but Jerome Powell was recently received by Joe Biden at the White House, with Janet Yellen, for a rare interview dedicated to inflation.

The high inflation everywhere in the world, and its effects on the markets, worry to the point that the European Central Bank (ECB) held an extraordinary meeting on Wednesday, at the end of which it promised to act to calm the tensions on sovereign debt.

Last week, it announced that it would start raising its rates in July.

With AFP and Reuters

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