The US Federal Reserve (Fed, central bank) began its monetary policy meeting on Tuesday, following which interest rates are expected to rise for the first time since the pandemic began, in an effort to contain rising inflation.
Policymakers face the difficult task of trying to contain prices without slowing economic growth, at a time when housing, food and energy costs rise at an unprecedented rate in 40 years and the consequences of the Russian invasion of Ukraine worsen the situation.
“The monetary policy committee (FOMC) meeting began at 09H00 (1300 GMT) as planned,” said a Fed spokesman.
At the end of this meeting, a statement will be published on Wednesday at 2:00pm (18h00 GMT), and the president of the monetary institution, Jerome Powell, will give a press conference at 14h30 (18h30 GMT).
Analysts predict that after two years at a very low level of 0 to 0.25% to sustain the economy through consumption, benchmarks should have a first increase and return to a range of 0.25 to 0.50%, or directly from 0.50 to 0.75%, which would be an unusually sharp increase.
Powell has come out very clearly in favour of an increase of only 0.25 points.
This increase will have the effect of pushing commercial banks to offer their customers higher interest rates on loans. The Fed seeks to slow down consumption and thus reduce pressure on prices. Especially since supply problems that deepen the shortage of some products are expected to last for months.
The monetary policy committee will also say how many rate increases it expects this year and next year, and will update its forecasts of gross domestic product (GDP) growth, inflation and unemployment.
Powell, “will walk a tightrope, balancing the needs to raise rates and curb a more systemic rise in inflation with the need to avoid a collapse in credit markets,” said Grant Thornton chief economist Diane Swonk.
Powell has expressed confidence that the central bank is well equipped to handle inflation risks, but has acknowledged the uncertainty surrounding the impact of the war.
The US Producer Price Index (PPI) rose by 10% in the 12 months ending February, and goods prices recorded their largest monthly increase, largely due to energy, the Commerce Department reported on Tuesday.
Oil prices have skyrocketed since the start of the conflict in Ukraine, but on Tuesday they fell below $100 a barrel amid optimism about the Kiev-Moscow peace talks.
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