The sharp rise in key rates announced by the Fed on Wednesday adds too many “uncertainties”, Kansas City Fed President Esther George said in a statement on Friday, the only dissenting voice at this meeting, and who pleaded for a less steep rise.
“I expressed my disagreement (…) against an increase of 75 basis points”, underlined this voting member of the monetary policy committee (FOMC), decision-making body of the Fed, “because I considered this decision as adding to political uncertainty as the Fed’s balance sheet reduction begins on June 1.
The Fed, in the face of unabated inflation, raised its key rates by three-quarters of a point on Wednesday, the highest level since 1994. These are now in the range of 1.50 to 1.75 %.
“With high inflation and a tight economy, the case for continuing to remove accommodative policy is clear,” notes the Kansas City Fed official, who says she shares “the committee’s strong commitment to reducing inflation. ‘inflation “.
“However, the speed with which we adjust the key rate is important”, she warned, justifying her dissenting vote, in favor of a less steep increase, of half a point, as had been the case. at the previous Fed meeting in early May. It was the biggest increase since 2000.
“Policy changes affect the economy with a lag, and large, abrupt changes can be unsettling for households and small businesses as they make the necessary adjustments. It also has implications for the yield curve and traditional bank lending models,” she explained.
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Further hikes are on the cards as Fed Chairman Jerome Powell paved the way for another three-quarter point hike at the next meeting.
The Fed’s Monetary Policy Committee is the decision-making body of the Fed, and meets eight times a year. It is made up of the seven members of the Board of Governors – one seat of which is currently vacant -, the President of the New York Fed, and the heads of four of the eleven other regional branches of the Fed, who have the right to vote in turn. role for a year.
The presidents of the regional branches, who do not have the right to vote, nevertheless participate in the meetings.