When the American authorities are fighting to ensure the stability of their financial system, they need more than the evolution of inflation figures to increase their room for manoeuvre. In March, inflation was undoubtedly higher than in the previous months, with an annual increase of 6% and an increase of only 0.4% compared to the last month.
As in Europe, this lower pressure on consumer prices is due to the fall in energy prices (-0.6% compared to the previous month and +5.2% year-on-year). On the other hand, food prices rose by 9.5% year-on-year and services by 7.3%. Again, this is widespread inflation, well above the Fed’s objectives, which the authorities will have difficulty controlling.
As a result of the problems in the financial sector, some have started to bet on a Federal Reserve that would reverse the trend and lower its interest rates to ensure financial stability. However, this is unlikely, given that inflation still needs to be reduced.
If new measures to support the financial sector are to be foreseen if necessary, the Fed should raise its key interest rates again next week, all while adopting a cautious discourse and once again indicating that the rate trajectory will depend on economic indicators.
United States, higher, longer
These four words sum up Jerome Powell's message during the hearing that the President of the Federal Reserve must spend every six months before the House of Representatives and the Senate are elected. This highly anticipated meeting allows the American bagman to express his views on the economic situation and monetary policy. And Jerome Powell’s statement is final.
Inflation is resisting more than expected, and monetary promises must be tightened further to get the evil inflationary genius in its bottle. So not only will the US policy rate reach a higher level, but it will also stay longer at that peak.
The US Federal Reserve will be less hesitant to raise the rent of money as the labour market situation remains perfect. After creating 504,000 jobs in January, the U.S. economy added another 311,000 jobs in February.
So far, the U.S. economy has resisted rising interest rates. As a result, an increase in the key interest rate of 0.50% at the next Monetary Committee in March will no longer be excluded. In contrast, the markets previously anticipated an adjustment of 0.25% in February.
However, rising interest rates are not painless for the US economy, and GDP growth will be fragile this year. As a result, a recession in the next twelve months still cannot be ruled out. But from a medium- and long-term perspective, the US economy remains well positioned. It has an unparalleled ability in major developed economies to overcome crises quickly. It also has a long-term development potential that is always interesting.
U.S. assets are a must in any diversified portfolio.