The battle against inflation is not yet won, but the case is on the right track. This is basically the message sent by Jerome Powell, the President of the Federal Reserve (Fed, American central bank), during his press conference, after the meeting of the monetary policy committee, Wednesday 1er february.
As expected, the institution raised its key rates, but only by a quarter of a point, to 4.75%. The bank is returning to a normal pace, after having raised the cost of money at a forced march, taking it from zero to 4.5%, in 2022. The Fed, in its press release, underlines that “Inflation has fallen somewhat, but remains high” and believes that continued increases will be appropriate to achieve a monetary policy tight enough to bring inflation down to 2%.
Other increases are to be expected, in March or May. However, during his press conference, Mr. Powell was optimistic, to the point that the markets, which had been in the red, soared: the Nasdaq, rich in technology companies and very sensitive to inflation, ended the session of Wednesday up 2% (12.9% since the start of the year), while the S&P 500 rose 1.05%. “I think we can now say that for the first time the disinflationary process has started”Mr. Powell said, while noting that he would be “very premature to declare victory or to think it’s done”.
A labor market favorable to employees
“Disinflation”, the word is pronounced, which concerns above all the price of goods. Excluding energy and food, these have been falling since September 2022, due to the absorption of post-Covid-19 bottlenecks (semiconductors, raw materials, freight) and the disaffection of consumers, who had overconsumed when they were confined. Their increase, over one year, was only 2.1% in December 2022.
Second good news, the rise in the cost of housing is calming down, in particular due to the doubling of mortgage rates, which stand at 6.5% over thirty years. There remains inflation in services, still too high, with an exuberance in air transport (+ 28% over one year): Mr. Powell would like to see it fall.
The still high inflation is notably linked to the job market, which remains very favorable to employees, with an unemployment rate of 3.5%, the lowest in fifty years, low immigration and participation in employment below pre-pandemic levels. In 2022, 50.5 million Americans left their jobs, or 3.1% of private sector employees. A record.
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