“patience” of the Federal Reserve (Fed) has found its limits, Wednesday, March 18. The famous phrase which meant a rise in interest rates in the United States was not imminent disappeared from the vocabulary of the US central bank.
But if the Fed has taken another step towards monetary tightening, Janet Yellen, the president, was quick to say in his press conference that “changing our guidance message should not be interpreted as the fact that we have decided on the calendar increase [rates] “. If it is the latter remains “unlikely at the meeting of the April Monetary Committee,” the statement the Fed . Clearly, the patience with impatience, there is a step that the central bank has not wanted to take to raise rates, which are close to zero since 2008.
Once that there is no obstacle to higher levels in terms of vocabulary, it “may be required at any meeting [Monetary Policy Committee] , following the evolution of the economy “, Yellen said. Which implies that the Fed could act as early as June. In its statement, the central bank says it needs to find a “further improvement” on the labor market and higher inflation before starting to raise rates.
Wanting to keep some degree of flexibility of schedule, the Fed has blown hot and cold on his perception of the recovery of the US economy. Thus, with regard to growth, it is “somewhat moderate” , the statement said. The first quarter actually looks less dynamic than expected, partly because of a harsh winter in the Northeast and the Midwest
In recent days, a disappointing set of indicators. – That Whether it is industrial production, retail sales and housing starts – has confirmed that the pace of recovery has slowed in the first three months of the year. The Fed took note revising downward its growth forecast for 2015, which should now be in a range between 2.3 and 2.7%, while in December 2014 it was counting on 2.6 yet 2.7%. However, Yellen said see “a considerable underlying strength in the US economy” , and added: “Despite a first quarter that seems lower, we expect good performance of the economy. “
However, on the employment front, the Monetary Policy Committee seems more optimistic. Given that the unemployment rate fell to 5.5% in February, its lowest level in seven years, the Fed now believes that this rate could be between 5 and 5.2% at the end of the year.
But a rise in interest rates also depends on the evolution of inflation. But it remains at low levels, due to the oil price decline and the sharp rise of the dollar, which moderates the cost of imports. For 2015, the Fed expects inflation between 0.6 and 0.8%, far from the 2% it has set. However, the Monetary Policy Committee is “reasonably confident” in the fact that inflation will tend towards this medium-term target of 2%. In the short term, the Fed believes that prices should not fall, but “stay at current low level” to 1.7 to 1.9% at the end of 2016.
While the recovery in the US seems well underway, some clouds still remain. First, the violent rise of the dollar starts to hurt exporters. A rise in interest rates would exacerbate the phenomenon. Then, the recovery in the housing market remains soft, while consumption is not as dynamic as might have been hoped, despite the drop in gas prices expected to bring an additional purchasing power the Americans. Furthermore, there is still 6.6 million part-time workers seeking full-time, 50% more than when the financial crisis began. Finally, wage growth is still pending, even though Ms. Yellen said she was not a prerequisite for a rate increase.
“The Federal Reserve risk delaying the first increase in interest rates due to low inflation and the appreciation of the dollar “, the OECD said Wednesday in a report, while Christine Lagarde, Managing Director of the International Monetary Fund (IMF), had invited the eve of the emerging countries to prepare for volatility in capital flows in the wake of rising US rates. In short, monetary tightening is getting closer, but the question of when it will occur, she remains.
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