The American central bank (Fed) is still counting on the start of a reduction in interest rates in 2024, but wants at all costs to avoid a rebound in inflation, because continued progress on this front “is not assured” , according to its president, Jerome Powell.
“If the economy performs as expected, it will likely be appropriate to begin easing monetary policy at some point this year,” Jerome Powell will say Wednesday at a House committee hearing, according to his published speech. upstream.
“But the economic outlook is uncertain and continued progress towards our 2% inflation target is not assured,” he should add.
The Fed, after raising its rates since March 2022 to 5.25%-5.50% in order to fight high inflation, is now considering lowering them.
But its officials have warned in recent weeks that they preferred to wait several months to be certain that prices do not start to soar again.
They are in fact engaged in a delicate balancing act, because “cutting (rates) too early or too much could result in a reversal of progress (…) in inflation and, ultimately, require a even stricter policy to bring inflation down to 2%,” Mr. Powell will underline.
But “cutting (rates) too late or too little could unduly weaken economic activity and employment.”
Despite these risks, the Fed president will also highlight the progress made on the inflation front, which in June 2022 was at its highest in more than 40 years.
“Even if inflation remains above the Fed’s 2% target”, “it has eased considerably”, and “without a significant increase in unemployment”, will greet Mr. Powell.
“As labor market tensions ease and progress on inflation continues, the chances of achieving our employment and inflation goals move toward a better balance,” he said. -he again.
The increase in the PCE inflation index, which the Fed wants to reduce to 2%, fell in January to 2.4% year-on-year compared to 2.6% in December. But over one month, it accelerated, to 0.3% compared to 0.1%.
Another measure, the Labor Department’s CPI index, disappointed, its rise slowing much less than expected, to 3.1%.
The next Fed meeting will take place on March 19-20.