the example of the Fed’s decisions during the latest crises

>> Article online on May 1, 2022 at 08:35 | Updated at 11:01 am

On the slack rope. The US Central Bank will have to solve a difficult equation on Tuesday and Wednesday: how high should interest rates be raised this year to bring inflation under control without sending the world’s largest economy into recession? Raising rates should moderate demand and thus slow price rises. In March, the Federal Reserve (Fed) started a fairly cautious rate hike (+0.25 percentage point), but it was the first since 2018.

At the end of its two-day meeting, this time unless surprised, the Monetary Policy Committee (FOMC) will approve an increase of half a percentage point to bring them within a range of 0.75% to 1%. It was Jerome Powell, the president of the powerful institution, who herself announced that this raise would be “on the table.”

Speaking to a panel of central bankers on the sidelines of International Monetary Fund meetings, he stressed that it was “absolutely essential” to restore price stability and raise interest rates “quickly” to allow the Fed to fulfill this privilege. can meet.

Other Fed members were even more explicit about the need for aggressive policies in the face of accelerating inflation and a tight labor market. Some therefore want similar increases to be registered at least at the next meeting, in June. Urgent action is needed as inflation, exacerbated by the Russo-Ukrainian war, is now at its highest level since the early 1980s.

The PCE index, which the Fed prefers, showed a 6.6% year-on-year price increase in March. According to the other index, the CPI, which is calculated differently, inflation peaked at 8.5%, the highest rate since December 1981.

Household spending exceeds expectations, inflation is rising

US household spending rose more than expected in March on the back of strong demand for services, while monthly inflation made its biggest jump since 2005.

The US Department of Commerce announced Friday that household spending, which accounts for more than two-thirds of US economic activity, rose 1.1% last month. February data was revised upwards, with spending up 0.6%, down from the previously reported 0.2%.

Economists polled by Reuters had expected a 0.7% increase in spending. While some of the increase was due to higher prices, the solid spending growth at the start of the second quarter reflects the underlying strength of the US economy.

The data is included in the preliminary report on gross domestic product for the first quarter, released Thursday, which shows that the economy has contracted by 1.4% year-on-year due to a wider trade deficit. A situation resulting from the increase in imports and the slowdown in the accumulation of inventories compared to the sustained pace of the fourth quarter.

The personal consumer spending (PCE) price index rose 0.9% in March, the largest increase since 2005, after rising 0.5% in February. In the 12 months to March, the PCE price index rose 6.6%. This is the largest annual increase since 1982 and follows a 6.3% year-on-year increase in February.

But March likely marked a spike in the rise in the PCE price index. Economists expect that increase to slow in the coming months, as last year’s big gains are no longer included in the calculation.

Annual inflation, all measures taken together, has exceeded the Federal Reserve’s 2% target and the US central bank is expected to raise interest rates by 50 basis points next Wednesday. The Fed raised its key interest rate by 25 basis points in March and is set to begin winding down its balance sheet soon.

Feedback on the Fed’s strong decisions

These are the Fed’s key actions since the 2008 financial crisis:


Nov 2008 – First massive cash injections, two months after the bankruptcy of the bank Lehman Brothers. The Fed will launch three consecutive programs before halting its asset purchases in June 2014.

Dec 2008 – Cut the interest rates by 75 and 100 basis points (0.75 and 1.00 percentage points), to bring them back to a range of 0 to 0.25%. They will stay there until December 2015.

October 2017 – Start of the reduction of the balance sheet, which had gone from less than $900 billion before the crisis to $4,500 billion.


Between December 2018 and August 2019 – Rates peak in a range of 2.25% to 2.50%.

Autumn 2019 – Tariffs have been slashed several times to fall between 1.50% and 1.75%, in light of slowing growth and the trade war launched by President Donald Trump. The Republican had consistently criticized the rate hike.


March 3, 2020 – Lower the interest rate by 50 basis points to 1.00-1.25%.

March 16, 2020 – Dramatic cut in interest rates by 100 basis points, within a range of 0 to 0.25% and relaunch of asset purchases or QE (quantitative easing) policy, to $120 billion per month.


Nov 3, 2021 – Announcement and start of phasing out asset purchases. The Fed wants to bring them down to zero by June 2022, so it can start raising key rates to get inflation under control.

December 15, 2021 – Recognizing that inflation is not “temporary”, the Fed is accelerating the end of its asset purchases to zero from March 2022 and no longer in June.

March 16, 2022 – The Fed is raising interest rates for the first time since 2018, now within a range of 0.25% to 0.50%.

Apr 6, 2022 – The minutes of the March meeting (“Minutes”) indicate that many participants believe that one or more increases of half a percentage point are appropriate if inflationary pressures persist.

April 29, 2022 – Consumer prices in the United States continued to rise in March, rising 6.6% over the year and 0.9% over the month, according to the Fed’s preferred PCE inflation index.

(with AFP and Reuters)