There will most likely be a final rate hike before the end of the year, and the cost of money will remain high at over 5% for a long time. This was the main message sent by the United States Federal Reserve on Wednesday, September 20, at the close of a Federal Open Market Committee.

While it has not touched its key rates, which remain in a range of 5.25-5.5%, the Fed is expected to raise rates by a further 0.25 points over the next few months before bringing them down to between 5-5.25% by the end of 2024, according to the institution's projections. The fall will therefore be marginal, only half a point, and much less than central bankers had hoped for in June when they were still hoping to be able to cut rates by one point, according to their projections.

Many said the Fed made a "hawkish pause," announcing yet more painful measures, in contrast to the European Central Bank, which opted for a "dove-like hike" last week, suggesting it was the last in the current cycle.

Inflation is still too high in the US. Admittedly, the generalized year-on-year rise in prices stood at 3.7% in August, well below the record 9.1% reached in June 2022. But it should be 3.7% in 2023 (versus 3.9% forecast in June) and 2.6% in 2024. This figure is still above the Fed's 2% target. So, with inflation likely to drop faster than rates in 2024, monetary conditions will tighten next year, a sign of the central bank's determination.

The institution chaired by Jerome Powell is obsessed with not repeating the mistakes of the 1970s and early 1980s, when it relaxed its policy too early, unwillingly favoring a return of inflation.

This fear is all the more remarkable that the solidity of the US economy continues to surprise the Fed. Powell conceded that growth was higher than expected. It should reach 2.1% this year and 1.5% in 2024 (compared with 1% and 1.1% in June's forecasts). Similarly, the job market remains surprisingly sound, with unemployment not expected to top 4.1% of the working population in 2024 and 2025 (compared with 4.5% forecast in June for both years). The considerable rise in interest rates, with the cost of money rising from 0% to over 5.25% since March 2022, has not slowed growth and employment, two prerequisites for eradicating inflation.

Households and businesses had built up considerable reserves during the Covid-19 episode, enabling them to continue consuming. Secondly, the rise in interest rates only affects those who have borrowed at variable rates or recently. During a housing boom following the pandemic, many Americans took out loans with fixed rates guaranteed for up to three years, which have remained unchanged, while businesses were accumulating cash.

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