The Fed plans to take its monetary policy to a level "neutral"

The Fed plans to take its monetary policy to a level "neutral"

Fed officials want to “quickly bring monetary policy to a neutral path” that neither stimulates nor slows down the economy, and even, if necessary, adopt a more severe policy, which could weigh on the economy, if the outlook allows it. justify, add the minutes.

“All participants reaffirmed their strong commitment and determination to take the necessary steps to restore price stability,” the document details.

Raising reference rates has the effect of increasing the cost of loans that commercial banks grant to their private or professional clients, which aims to slow down demand and therefore the pressure on prices.

Fed officials, during their meeting on May 3-4, raised rates by half a percentage point, and they are now between 0.75 and 1%.

The monetary committee, the Fed’s decision-making body for its monetary policy, wants to continue with the hikes to reach a “neutral” level of between 2 and 3%.

In another major stage of the normalization of monetary policy, the Fed will begin to reduce its balance sheet from June 1, after it bought securities during the pandemic in order to flood the market with liquidity and allow it to continue.

Year-on-year inflation in March had reached its highest level in 4 decades, reaching 8.5%, before a slight drop in April when it reached 8.3%, according to the consumer price index (CPI).

The Fed privileges another measure of inflation, the PCE index, whose data for the month of April will be published on Friday, and which also registered its highest figure since 1982, when it reached 6.6% in March.

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