No cut in interest rates in the United States: a decision more political than economic

Interest rates are also talked about a lot, in France and in Europe. This is what makes it possible to regulate economic hazards. When inflation soars, the temptation is great to increase rates to slow down the machine.

Conversely, when the economy is slipping, there is a great temptation to lower rates to revive investment and growth. Status quo therefore, Wednesday October 28, in the United States. The American Federal Reserve – the equivalent of our European Central Bank – wanted to remain cautious.

Also read Purchasing power at the heart of the midterms This monetary immobility comes several weeks after a quarter-point rate increase which angered Donald Trump. Obviously, the tenant of the White House does not care about inflation which accelerated last month in the United States (+3.7% over one year), due in particular to the surge in energy prices with the war in the Middle East, a war against Iran triggered by Trump himself. Today, the American president considers it necessary to lower rates to favor the American economy.

Europe indirectly trapped Faced with soaring inflation, won't the central bank be forced to raise these rates, despite Trump's bad mood? The question is no longer whether the Fed will raise rates but when it will do so. The governor of the Federal Reserve, Kevin Warsh – supposed to be independent of political power but nevertheless appointed by Trump last spring – is caught between two fires: either raising rates to fight inflation but going against the advice of the person who appointed him; or not modify its monetary policy to satisfy the president.

Europe finds itself indirectly trapped in this affair. Because, if officially it does not align its decisions with the Americans, the ECB is observing the evolution of the situation across the Atlantic very closely. Moreover, the board of governors of the European Central Bank meets on Thursday.

Are we moving towards raising rates in the United States and Europe to curb inflation? This seems logical, but at the risk of making credit more expensive for households, slowing down investment, penalizing real estate and slowing down consumption in general. But it is urgent to wait for the mid-term elections scheduled for next Tuesday before pressing the button... The United States is imposing its tempo.

Machine-translated from French