Photo: Mark Wilson / Getty Images / Agenc France-Presse
The stock markets have begun to sting the nose when the central bank announced the increase in the interest rate. They have accelerated their descent as the Fed chairman Jerome Powell, answered the questions of journalists.
Saying it was forced, this year, to adapt to an american economy that has never been so well since the Great Recession, the u.s. federal Reserve has conducted, Wednesday, the fourth increase in interest rates in 2018. But it also warns in the same breath that she sees now two times less for 2019.
The u.s. central bank has raised its key interest rate by a quarter of a percentage point to bring it to the inside of the narrow range between 2.25% and 2.50 %. Adopted unanimously by the ten voting members of the monetary policy committee of the Fed (FOMC), this increase was largely anticipated in spite of the opposition, just as public and repeatedly that it is contrary to the rule of non-interference, the president of the United States, Donald Trump, who sees it as an obstacle to his own conduct of the economy.
Reaffirming the independence of his institution, the chairman of the Fed has repeated in a press conference that the conduct of monetary policy depended on a strictly economic reality and its evolution in function of the two missions of the central bank, namely the pursuit of full employment and maintaining inflation around the target of 2 % per year. “Political considerations play absolutely no role” in the decisions of the Fed, has hammered Jerome Powell, who is in post for less than a year but has already had time to be subject to more direct criticism on the part of the tenant of the White House.
We feel that the Fed is a little concerned over the strength of the economy and wants to avoid an over-restrictive policy
— Francis Généreux
However, “2018 was a year of very strong, the strongest since the financial crisis” at all points of view, he explained, due to among other things tax cuts and higher public spending Donald Trump. Before the decline in unemployment (now at 3.7 %), higher wages (approximately 3 %) and the increase of the rate of inflation close to its target (1.9 %), the Fed has judged it appropriate to raise a quarter of a percentage point off its key rate, not three times, as she had anticipated a year ago, but four. This brings him back “to the lower limit” of the area which it regards as a neutral rate, that is to say that there is, or as an accelerator or as a brake to the economy, and that the members of the FOMC are in the region of 2.75 %.
Clouds on the horizon
The next year should be good, too, explained Jerome Powell, but it gives a glimpse of the difficulties, particularly on the side of the global economy. “We have seen an evolution which could signal a slowdown compared to what was planned some months ago “, he said. “A tightening in financial conditions observed over the last two months “, notably with the fall of the stock market, ” coupled with signs of weaker growth abroad has led us to a small reduction in the projection for growth and inflation “.
In response to journalists ‘ questions, the Fed chairman did not deny that the numerous trade disputes triggered by Donald Trump, especially with China, were part of the clouds that accumulate over the global economy, in the same way as the difficult negotiations of Brexit and the opposition between the new Italian government and the rest of the european Union.
FOMC members have revised down their economic growth forecasts for the United States in the month of September from 2.5% to 2.3 % in 2019, compared to 3 % this year, and think that this pace will continue to slow thereafter to 2 % in 2020 and by 1.8% in 2021, until you return to a more normal level. For the same reasons, are also now two other increases of a quarter point interest rate in 2019 rather than three, as they thought at the beginning of the fall.
“We feel that the Fed is a little concerned over the strength of the economy and wants to avoid an over-restrictive policy “, noted in a brief analysis of the economist of the Mouvement Desjardins Francis Généreux.
The announcement has not been unpleasant to the financial markets. Expecting, apparently, to more reserve on the part of the central bank as to the chances of further increases in interest rates next year, they started to sting the nose as soon as its decision is announced and accelerated their descent as Jerome Powell responded to questions from the journalists. Up more than 1 % before the Fed’s announcement, the S&P 500 has finally lost 1.5 % on Wall Street and completed the day at its lowest level since September 2017.