Consequences for the labour market
US monetary authorities warn against too late interest rate turnaround
18.08.2024, 23:14
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The Fed’s goal is to slow down inflation without slowing down the economy. Leading central bankers are skeptical as to whether the priorities are still set correctly. This could indicate an imminent turnaround in interest rates.
US Federal Reserve Banker Austan Goolsbee has warned of the risks of a late interest rate turnaround. The head of the Chicago Federal Reserve District told CBS on Sunday that there is no certainty that the US Federal Reserve will cut interest rates in September as widely expected. However, failure to do so could harm the labor market. “If you set a high interest rate, as we have done, and keep it there while inflation falls, then you are actually tightening monetary policy,” he added.
The president of the San Francisco Federal Reserve District, Mary Daly, expressed similar views. With regard to the key interest rate, she told the Financial Times that it was time to think about adjusting borrowing costs.
In order to slow economic growth and maintain downward pressure on inflation, the Fed has kept its key interest rate in the range of 5.25 to 5.50 percent for over a year now. The economic data is a mixture of positive and some rather worrying indicators, said Goolsbee: “If you keep monetary policy too restrictive for too long, you will run into problems with the Fed’s employment mandate.” The US central bank is supposed to promote full employment and at the same time ensure stable prices.
At the beginning of the month, panic broke out in the financial markets when weak labor market figures stoked fears of a recession in the USA. The fear has now subsided in light of a series of positive data. However, investors are hoping for guidance on the future course. The three-day central bank symposium in Jackson Hole, Wyoming, which begins on Thursday, offers an opportunity for this. Fed Chairman Jerome Powell is likely to use the forum on Friday to send signals for monetary easing with a view to the interest rate decision on September 18.