Fed official calls for more interest rate hikes

(Washington) A US central bank official said Friday that the conflict in Ukraine had him pushing for a rate hike of only a quarter point on Wednesday, but he is defending a half-percentage point increase or more this year. .

Posted yesterday at 12:26 PM.

The Federal Reserve raised interest rates on Wednesday for the first time since 2018 in the face of inflation.

The institution opted for a cautious increase, raising it by a normal quarter of a percentage point, rather than by half a point directly. The rates, which since March 2020 have been in the range of 0 to 0.25%, are now between 0.25 and 0.50%.

Christopher Waller, a Fed governor, explained that economic data, particularly rising inflation, “strongly encourages us to raise interest rates by 50 basis points”, “but geopolitical events suggest that we are moving forward with caution.” CNBC on Friday.

“These two factors combined led me not to call for the 50 basis point increase at this meeting, and to support the 25 basis point increase that we have adopted,” he said.

But Christopher Waller argues that the Fed will have to resort to steeper increases at future meetings, “if we have an impact on inflation later this year and next.” this means [une hausse de] 50 basis points in one or more meetings in the near future.”

By the end of 2022, prices should hover around their considered “neutral” level, which Mr. Waller puts between 2 and 2.15%.

credibility

It is believed that the reduction of the balance sheet should have started “before” the meeting of 26 and 27 July, i.e. it should start during the next meeting, 3 and 4 May, or the next, 14 and 15 June.

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The Fed will already be gradually phasing out the billions of dollars in Treasuries and other assets it has purchased since March 2020, to prop up the economy.

In Wednesday’s vote, only one official, St. Louis Fed President Jim Bullard, voted against a 0.25 percentage point increase, saying he favored a faster 0.50 point increase.

This increase, as well as “implementation [d’] He explained in a written statement on Friday that a plan to reduce the size of the Federal Reserve’s balance sheet would have been more appropriate.

“Despite the geopolitical risks, the US economy is expected to continue to grow in 2022 and 2023 at a rate well above its potential long-term growth rate,” he said.

He added that this, along with high inflation, “means that the committee’s policy rate is very low at the moment,” stressing the Fed’s need to “move quickly to address this situation or risk losing its credibility with regard to targeted inflation.”

He’s pushing for prices to be “above 3% this year”.

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