Wednesday, December 14, 2016

The Fed raises rates before the arrival of Trump at the White House – The Obs

Washington (AFP) – The central bank of the United States (Fed) decided Wednesday to raise its interest rates in the face of improving economic conditions in the United States, a month of the entry into office of the president-elect Donald Trump.

“It is a vote of confidence in the economy”, commented the president of the Fed Janet Yellen, at a press conference.

at the end of a two-day meeting in Washington, the monetary committee of the Fed (FOMC) announced an increase of a quarter of a point from its key interest rate, which evolves now in a range between 0.50 and 0.75%, with the risk to lead to a rise in the cost of credit in the United States.

there was just a year ago, the Fed had conducted its first increase in almost ten years, thus putting an end to the policy of zero rates in place after the 2008 crisis to support the economic recovery and ease credit.

But she had, since, decided to tighten further its monetary policy, invoking in turn the economic gloom abroad, lower oil prices, the turmoil related to the Brexit british or the imminence of the american presidential election of 8 November.

The FOMC, which met for the first time since the election of Mr. Trump, now seems convinced to hold the “additional evidence” of the improvement of the us economy that it was expected to pass back to the action.

– the “solid Progress” -

“A modest increase in (rates, editor’s note) is appropriate in the light of the solid progress we have seen on our goals of full employment and 2% inflation”, summarized Ms. Yellen.

The unemployment rate has continued its decrease in the United States to fall in October to its lowest level in nine years (4.6 per cent), approaching full employment at the heart of the mission of Edf. “The job gains have been strong in recent months,” notes the FOMC in its statement.

The annual inflation continues to go back very gradually towards the 2% threshold, the other objective of the Fed which is now expecting an annual inflation of 1.9% for next year.

a further Sign of this renewed optimism, the Fed also revised upward on Wednesday its forecasts for economic growth in the United States, particularly in 2017, when the gross domestic product should grow 2.1%.

a number of weaknesses remain, however, particularly business investment, which remains “low,” the FOMC in its statement.

political Pressure -

After this rate increase, everyone will now watch for the reaction of the world markets, but also that the president elected in the united states, which had severely criticized the central bank, accusing it of political bias.

During his campaign, Mr. Trump had accused the Fed to hold rates artificially low in order to “make the game” of the Obama administration and avoid a slowdown of the economy.

Since his victory of November 8, the president-elect has somewhat muted these criticisms, but the measures that he is expected to announce after his inauguration on January 20, could influence policy monetary of the central bank.

Mr. Trump has committed to massively reduce taxes on the corporations and to engage in massive infrastructure spending, two measures that could permanently encumber the public finances in the united states.

If it has the potential to boost growth, a fiscal stimulus may also strengthen the inflation, which could lead the Fed to accelerate the pace of increases in rates to avoid a runaway uncontrolled price.

The members of the Fed appear in any case, to show already favourable to tighten monetary policy faster than planned to avoid overheating. They rely now on three rate increases in 2017, against two of the planned three months ago, according to projections released Wednesday.

“changes in fiscal policy and other economic measures could potentially affect the economic outlook,” admitted Ms. Yellen, while ensuring that it was “too early” to assess the potential impact.

Asked about the relevance of the economic program of Donald Trump, Ms. Yellen has played the caution and took refuge behind its independence. “I will not be offering not to the future president advice on the measures it will put in place”, she assured, avoiding questions about his own future.

“I did not take any decision on the future,” said the one whose mandate ends in 2018.


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