the Fed raises its key rate again sharply by 0.75 points

This is the third consecutive rise of this level.

The Fed persists and signs. As its leaders suggested, the Federal Reserve raised its main rate by 75 basis points on Wednesday evening. The US central bank is thus raising the Fed Funds rate to between 3% and 3.25%. This is the third consecutive increase of this magnitude for this benchmark short-term credit rate in the United States. The Fed had kept it at zero from March 2020 to March 2022 in order to combat the risk of deflation during the Covid crisis.

Unanimous, the governors of the Fed note in their press release that “Recent indicators point to modest growth in (consumption) spending and output. (…) Unemployment remained low. » This favorable tone pleads in favor of further key rate hikes soon at the next Fed meetings in November and December. A rise in the key rate to more than 4%, or even 5%, cannot be ruled out. The central bank promised to maintain its hikes until inflation showed convincing signs of falling. Institution Chairman Jerome Powell said the Fed was “firmly committed to bringing inflation down to 2% and will remain so until the job is done».

Contrary to the hopes of some, the fall in oil prices during the summer did not defuse the inflationary spiral. The price index in August reached 8.3% year on year. Rent and food prices continue to rise sharply. Wage increases are not enough to offset price increases, but they nevertheless fuel inflation via business costs as employee productivity declines.

Caught at fault by their delay in recognizing the revival of inflation, Jerome Powell and his colleagues considerably hardened their tone during the summer. Bond markets are shaken by their sharp turn. The yield on 2-year US Treasury bonds rose from 0.73% in early January to over 4%. For their part, the equity markets plunged, alarmed by the growing risk of recession. The dollar, on the other hand, is benefiting from this rate hike.

SEE ALSO – Already, in July, the Fed raised its rates again by three quarters of a point

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