Washington | The US Central Bank is holding its monetary meeting on Tuesday and Wednesday, the last before the November 3 presidential election, as Democrats and Republicans are deadlocked on voting on a new aid plan for the US economy.
At the end of this meeting, the Fed will unveil its forecasts for the US economy until 2023, data eagerly awaited in the context of great uncertainty generated by the Covid-19 crisis.
The members of the monetary committee should thus bet on “a slow (economic) recovery, a slow recovery of inflation”, anticipates Steve Englander, of the Standard Chartered bank.
Before the summer, the Fed expected a 6.5% decline in US gross domestic product in 2020, before rebounding 5% in 2021 and rising 3.5% in 2022.
On the unemployment side, it projected a rate of 9.3% in 2020, before falling to 6.5% in 2021 and 5.5% in 2022.
But the figures for August were better than expected with an unemployment rate already reduced to 8.4% against a historic peak of 14.7% in April.
GDP contracted 31.7% in the second quarter at an annualized rate.
Impatient market players
Another subject should particularly interest observers: the policy change announced at the end of August by the institution.
This major development should enable the Fed to be more efficient, in particular to achieve full employment and to benefit everyone from an economic recovery, especially minorities.
Its president Jerome Powell took advantage of the annual meeting of the World Banks, virtual this year, to explain that inflation above the 2% target can be tolerated for a certain time without causing an automatic increase in interest rates. .
Until then, the usual policy was that interest rates were lowered to stimulate the economy, but raised when inflation was too high.
“Many expect the Fed to change its end-of-meeting statement and forecast to reflect” this change, David Wessel, economist for the Brookings Institution, also told AFP.
New assistance plan
“I’m going to take a close look at how Jerome Powell talks about (government) fiscal policy. He was fairly cautious, while explaining that the Fed hopes that Congress will soon provide budgetary support to the economy, ”he also underlined.
Democrats and Republicans have not been able, for more than a month, to agree on a new aid plan for households, businesses, communities, schools, etc.
And, both camps blame each other for the failure, accusing each other of electoral calculation a month and a half before the election.
The hypothesis that there is ultimately no new aid plan by then can no longer be ruled out.
Jerome Powell and other Fed officials have repeatedly talked about the importance of a new aid package to get the world’s largest economy back on track.
“He will continue to encourage budget support, without taking sides,” commented Steve Englander.
Fed officials should also be careful not to comment on the duel between Donald Trump and Joe Biden, a month and a half before the election.
“If the question is put to him (during the press conference), (Jerome Powell) will answer that he does not comment,” says Jay Bryson, chief economist for the Wells Fargo bank.
Nothing to expect on the interest rate side either.
They were reduced to zero in March in the face of the spread of Covid-19 in the United States and the establishment of containment measures. And are not expected to budge for several years, according to an interview with the Fed chairman on public radio NPR on September 4.
