A senior Federal Reserve official expressed early support for another 0.75 percentage point rate hike at the next central bank meeting in July, expecting inflation will not ease enough to slow the pace of monetary tightening .
In a speech delivered on Saturday, Christopher Waller, a Fed governor, reiterated the central bank’s commitment to tackling the worst inflation problem in more than forty years, saying it was “fully committed to restoring price stability.”
Waller’s comments come just days after the Fed significantly stepped up efforts to combat rising prices, delivering its first 0.75 percentage point rate hike since 1994. The Swiss National Bank and Bank of England also hiked interest rates this week, as central banks around the world took aggressive action to curb rising inflation.
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“If the data comes in as I expect, I will support a similarly large move at our July meeting,” Waller said at a panel hosted by the Fed’s Dallas office, calling this week’s decision “another significant one.” step towards reaching our inflation target”. .
In addition to raising the federal funds rate to a new target range of 1.50 to 1.75 percent, the US Federal Reserve also signaled support for what is likely to be the fastest monetary tightening since the 1980s.
Most officials now expect the federal funds rate to rise well above 3 percent by the end of the year and potentially reach as high as 3.8 percent in 2023.
Given that this rapid rise in the cost of borrowing is likely to cause some economic pain, policymakers projected the unemployment rate to rise over the next two years from 3.6 percent currently to 4.1 percent in 2024, with core inflation surging Cent’s target is still just over 2 percent. Rate cuts are also expected by then as growth is expected to slow to below 2 percent.
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Many economists believe the economic impact of the Fed’s measures to contain inflation – which they expect may worsen in the coming months and be more persistent than expected – will be far greater than what the central bank has acknowledged so far . That means higher unemployment and an increased likelihood of a recession next year, they warned.
While Jay Powell, the chairman, conceded this week that achieving a so-called “soft landing” is becoming “more challenging”, he maintains that there are still ways to cool the economy to the point where inflation abates , but without causing excessive conjuncture damage.
The Fed has been heavily criticized for contributing in part to this problem by being too slow to tackle inflation last year, instead treating it as a “temporary” phenomenon that would resolve itself. By allowing price pressures to spiral out of control, the Fed is now having to act far more aggressively than it otherwise would have, its critics say, threatening the economic recovery.
Waller elaborated on those rulings on Saturday, admitting that some of the criteria the Fed set before it began tapering its monetary stimulus were too “restrictive.” Rather than reducing monetary accommodation “later and faster,” Waller said the Fed could potentially have done so “earlier and more gradually.”
The central bank is now poised to tighten the screws on monetary policy further, with Powell indicating it will maintain an aggressive pace until officials see “convincing evidence” that inflation is easing. That brings with it a set of slowing monthly inflation numbers.
For its next meeting in July, the chairman said the Fed would likely choose between a 0.50 or 0.75 percentage point hike, but some economists believe an even bigger move of a full percentage point isn’t entirely off the table.
Neel Kashkari, the dovish Minneapolis Fed President, said Friday he could support another 0.75 percentage point move next month but warned the central bank against doing “too much more frontloading.”
He said a “prudent strategy” could continue after the July meeting of half-point rate hikes “until inflation is on the way down to 2 percent.”