The president of the American central bank (Fed), Jerome Powell, warned the markets on Friday that it is too early to anticipate a rate cut, and that the Fed even stands ready to raise them further if necessary in the face of inflation.
“It would be premature to conclude with certainty that we have reached a sufficiently restrictive level, or to speculate on when the policy might be relaxed,” Jerome Powell said during a speech at Spelman College in Atlanta, Georgia.
“We are ready to further tighten the policy if it proves appropriate to do so,” he even warned.
Fed rates are in a range of 5.25 to 5.50%, the highest in more than 20 years.
The Fed has raised them 11 times since March 2022, in order to bring down inflation, which had soared to a level not seen since the early 1980s.
“While lower inflation numbers in recent months are welcome, this progress must continue if we are to achieve our 2% goal,” commented the Fed Chairman.
The price increase in October was 3.0% year-on-year, according to the PCE index, a gauge favored by the Fed. So-called core inflation – excluding food and energy – is 3.5%.
This drop in inflation goes hand in hand with a slowdown in economic activity, observed since the beginning of autumn.
Rate increases, in fact, aim to make credit more expensive for households and businesses, in order to slow down consumption and investment, and ultimately ease the pressure on prices.
But it takes months for the Fed’s actions to have an effect on the real economy.
“The full effects of our tightening have probably not yet been felt,” warned Jerome Powell.
The Fed had therefore not raised rates during its last two meetings, in order to give itself time to observe the effects of its policy on the economy, and to avoid putting too much pressure on activity, which would risk cause a recession.
Fed officials anticipate “spending and output growth will slow over the next year as the effects of the pandemic and the recovery fade and restrictive monetary policy will weigh on demand,” detailed the president of the institution.
The next Fed meeting will take place on December 12-13.