a Fed official anticipates long-term rates around 3%

The interest rates of the American Federal Reserve (Fed) could settle in the long term around 3%, one of its officials estimated on Tuesday, which would place it at a level much higher than it was before. the pandemic.

This is a revision of the previous forecast by Loretta Mester, President of the Cleveland Fed and a member of the Fed Monetary Policy Committee (FOMC), who until now envisaged a long-term rate of 2, 5%.

I have revised my forecast to take into account the continued solidity of the economy despite still high interest rates and a potential equilibrium rate envisaged higher by the models, justified Ms. Mester during her intervention, during ‘a Cleveland (north) conference.

In economic theory, the equilibrium interest rate is that which allows supply to best meet demand, without excess in one direction or the other.

The Fed’s latest projections currently anticipate a long-term interest rate of around 2.6%.

The President of the Cleveland Fed nevertheless recalled that there are various risks, notably geopolitical tensions, the slowdown in Chinese growth or a potential deterioration of the real estate market, which could weigh on the American economy and encourage central bank support growth by lowering rates.

The Fed’s main rate remained close to 0% between December 2008, at the height of the financial crisis triggered by subprime mortgages, and early 2017, only crossing the 1% threshold in June 2017 to stabilize between 1. 5% and 2.5% until the start of 2020 and the shock caused by the Covid-19 pandemic.

The record inflation observed with the economic recovery, which peaked at 9.5% in June 2022 in the United States, pushed the Fed to sharply raise its rates, going from 0% to 5.50% between March 2022 and August 2023. , level at which they have remained ever since.

But the return of inflation to levels closer to the Fed’s target, set at 2%, must lead the institution to consider lowering its rates, with the markets anticipating a first reduction at the meeting scheduled for mid-June.

In February, the PCE price index, which is the one favored by the Fed for the conduct of its monetary policy, stood at 2.5%, up slightly compared to January, encouraging the central bank to exercise caution.

The next FOMC meeting, scheduled for April 30 and May 1, should end with a status quo, markets anticipate, according to CME aggregator FedWatch.

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