A senior US Federal Reserve official expressed early support for another 0.75 percentage point increase in interest rates at the next central bank meeting in July, waiting for inflation not to slow down enough to slow the pace of tightening monetary policy .
In a statement Saturday, Christopher Waller, the Fed’s manager, reaffirmed the central bank’s commitment to tackling the worst inflation problem in more than forty years, saying it was “all about restoring price stability.”
Waller’s comments come just days after the Fed stepped up its efforts to tackle rising prices and introduced the first 0.75 percentage point rise in interest rates in 1994. The Swiss National Bank and the Bank of England also raised interest rates this week. as the world’s central banks took aggressive action to curb rising inflation.
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“If the data comes as I expect, I will support a similar move at our meeting in July,” Waller said at a panel hosted by the Fed’s Dallas branch, describing this week’s decision as “another significant step toward meeting our inflation target.” .
In addition to raising interest rates on federal funds to a new target range of 1.50 to 1.75 percent, the US Federal Reserve has also signaled support for what appears to be the fastest monetary tightening since the 1980s. of the last century.
Most employees now expect the interest rate to rise well above 3% by the end of the year and potentially reach 3.8% in 2023.
Reflecting that this rapid rise in borrowing costs is likely to cause some economic pain, politicians predicted that the unemployment rate will rise over the next two years from its current level of 3.6 percent to 4.1 percent in 2024, as core inflation is still just above its 2 cent target. Until then, interest rate cuts are expected, as growth is expected to slow below 2 percent.
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Many economists believe that the economic impact of the Fed’s actions to curb inflation – which they say could worsen in the coming months and be more sustainable than expected – will be much greater than what the central bank has acknowledged so far. . That means higher unemployment and increased chances of a recession next year, they warned.
While Jay Powell, the president, admitted this week that it was becoming “more challenging” to achieve the so-called “soft landing”, he said there were still ways to cool the economy to the point where inflation was slowing, but without to cause unnecessary economic damage.
The Fed has come under considerable criticism for contributing in part to this problem, moving too slowly last year to deal with inflation and instead treating it as a “transient” phenomenon that will deal with itself. . Allowing price pressures to spiral out of control, the Fed must now act much more aggressively than it would otherwise, his detractors say, putting economic recovery at risk.
Waller turned to these assessments on Saturday, acknowledging that some of the criteria the Fed had introduced before it began reducing its monetary incentives were too “restrictive.” Instead of cutting back on cash “later and faster,” Waller said the Fed may have been able to do so “earlier and more gradually.”
The central bank is now ready to continue tightening the screws on its monetary policy vigorously, with Powell saying it will maintain an aggressive pace until officials see “convincing evidence” that inflation is slowing. This leads to a series of slowing monthly inflation figures.
At his next meeting in July, the chairman said the Fed was likely to choose between an increase of 0.50 or 0.75 percentage points, but some economists believe that even a bigger move than a full percentage point is not completely out of the table.
Neil Kashkari, the dove president of the Fed in Minneapolis, said on Friday he could support another 0.75 percentage point move next month, but warned the central bank not to do “too much frontloading”.
He said a “reasonable strategy” could continue to raise interest rates by half a point after the July meeting, “until inflation begins to fall to 2 percent.”
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