President of the Philadelphia district of the Federal Reserve (Fed, the US central bank), Patrick Harker said he considered it appropriate to raise the basic interest rate in the United States four times over the course of 2022, with increases of 25 basis points each, during an interview with broadcaster Bloomberg TV. According to him, the US central bank could raise interest rates by 50 basis points if inflation rises sharply again, but he stressed that he is “less convinced” that this would be the appropriate step.
For the leader, who has the right to vote at meetings of the Federal Open Market Committee (FOMC, its acronym in English) this year, the Fed is not behind the curve as strong inflation in the US is mainly caused by imbalances between supply and demand. , something the Fed “can do very little” to address, he said. At the same time, Harker stressed the need to “act now” to try to control the rise in prices.
He also predicted that the January jobs report (known as the “payroll”), which will be released next Friday, the 4th, will come weak only because of the temporary impact of the Omicron variant of the coronavirus on the American job market. In this way, Harker signaled that the data should not take the fight against inflation out of the Fed’s focus.
Finally, the central banker avoided commenting definitively on the future reduction of the BC’s asset balance, something that should start to be carried out after the cycle of high interest rates starts. Harker said the process should be more “accelerated” than the last time the Fed carried it out, but he advocated that it be done in a way that doesn’t cause turmoil in the markets.
Inflation and expectations
Also on Tuesday, Federal Reserve Atlanta District Chair Raphael Bostic warned that the reactions of companies and individuals could cause inflation caused by imbalances between supply and demand during the pandemic to extend into long-term expectations. term, permanently altering the inflationary trajectory and de-anchoring it from the BC target of 2% per year.
In a text published on Tuesday on the Atlanta Fed’s website, Bostic said that, for now, the rise in long-term inflation expectations in the US was not enough to cause its de-anchor from the target, but said there was “real danger” of this to occur, taking them to about 4% per year.
Therefore, the central banker – who does not have the right to vote at the Federal Open Market Committee meetings this year – believes it is necessary to withdraw the emergency monetary accommodation provided by the Fed during the crisis. He sees it as appropriate to raise the base rate three times in 2022, but said that his view could be adjusted according to the price trajectory. He did not specify the size of the increases to be made.
For Bostic, maintaining the current level of monetary accommodation would further fuel inflation, forcing the Fed to tighten monetary policy more aggressively afterwards.
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