United States: Fed welcomes economic progress, but does not announce monetary tightening

The US economy has progressed, welcomed the US Central Bank (Fed) on Wednesday, which maintained its monetary support as it was and indicated that it wanted to observe again before tightening its policy, noting that clouds still threaten the outlook .

Read also: Caution expected at the Fed, between inflation and Delta variant

The Fed has, unsurprisingly, kept its key rates in a range of 0 to 0.25%, where they had been urgently lowered in March 2020 in the face of the Covid-19 pandemic. It also, at the end of this meeting which began Tuesday morning, kept the current level of 120 billion dollars per month of asset purchases, which allowed the markets to continue to function despite the crisis.

"Thanks to progress in vaccination and strong political support, economic activity and employment indicators continued to strengthen,"

the Fed said in the press release on Wednesday. The Central Bank also notes that

"the sectors most affected by the pandemic have shown improvements, but have not fully recovered".

She also stressed that

"risks persist on the economic outlook"

. The Delta variant in particular, which has resumed cases of Covid-19 in many regions of the world, is now threatening the fine American economic recovery. Fed Chairman Jerome Powell is scheduled to hold a press conference at 2:30 p.m.

On the other hand, the Fed did not provide any indication on the timetable for reducing its monetary support, simply indicating that it would continue, before tightening its policy, to

"assess progress at the next meetings"

.

Some analysts are awaiting an announcement on this subject at the end of August, at the conference of world central bankers in Jackson Hole (Wyoming), or at the end of September, at the next meeting of the Fed's Monetary Committee.

The monetary institution reiterates that it wants the economy to be pulled out of the woods before acting.

At the last meeting in June, its members were overwhelmingly in favor of a first hike in 2023.

Acceleration of inflation

The Fed estimated that

"inflation has accelerated, largely reflecting transitory factors

.

"

The rise in prices in the United States is experiencing its fastest pace in 13 years, + 3.9% over one year in May for the PCE index followed by the Fed and whose June figure will be released on Thursday, and +5 , 4% in June for the CPI index. It anticipates 3.4% inflation this year, then stabilization near its 2% target, at 2.1% in 2022 and 2.2% in 2023, according to forecasts published in June, which will be updated during of the September monetary meeting.

At a press conference shortly after the release of the press release, Jerome Powell said inflation could be

"higher and more persistent"

than expected, a change of tone as he insists that this price hike is not expected. be only temporary.

"As the reopening continues, other constraints could continue to limit how quickly supply can adjust,"

increasing

"the possibility of inflation turning out to be higher and more persistent than we expect. »

, He declared.

"I am confident in the fact that in the medium term inflation will come down"

, he nevertheless qualified, acknowledging that

"it is difficult to say when"

.

“We believe that some (of this inflation) will naturally disappear as the process of reopening the economy progresses.

It could take some time, ”

he said.

"Either way, we'll use our tools appropriately, to make sure inflation hovers around 2%,"

the Fed's target,

Succession

The Federal Reserve refuses to raise key rates too soon, fearing that this could slow down the economic recovery and the recovery of the labor market. A policy that goes in the same direction as the recommendation made Tuesday to central banks by the International Monetary Fund (IMF),

"to continue the monetary policy approach based on economic data,"

according to Petya Koeva Brooks, its deputy director. No too hasty tightening of monetary conditions, therefore, but monitoring of the situation very closely. The IMF also estimates that inflation will be temporary, but has pointed out the risk that it will persist, counting for the United States on 4% inflation in 2021, then 2.5% by the end of next year.

To read also: The challenges of Janet Yellen, future finance minister of Joe Biden

The succession of Jerome Powell, who will arrive at the end of January at the end of his first four-year term, could also be discussed at the press conference.

But he should avoid these questions.

It is up to the White House, which has so far remained silent on this very political subject, to maintain or not at the head of the Fed for four additional years.

Four years ago, Donald Trump chose to replace Janet Yellen with Jerome Powell.

The one who was then head of the Fed is now Joe Biden's Treasury Secretary.