An official of the American central bank (Fed) pleaded on Saturday for the institution to continue to raise its key rates sharply until inflation actually falls.
The Fed raised rates by three-quarters of a point at the end of July, a much bigger hike than the usual quarter-point.
Increases of a similar size should be considered until we see inflation come down in a consistent, meaningful and sustained manner, Fed Governor Michelle Bowman told the Kansas Bankers Association.
It is absolutely essential that we continue to use our monetary policy tools until we succeed in bringing inflation back to our 2% target, she stressed.
Inflation reached 6.8% over one year in June, according to the PCE index, favored by the Fed, and 9.1% according to the CPI index.
Ms. Bowman cites a significant risk of high inflation next year for basic necessities, including food, housing, fuel and vehicles.
Especially since the labor market also remains tight, with a shortage of labour.
However, one aspect of the labor market that has not recovered is participation, the governor notes: Nearly four million people are still absent.
The labor market showed unexpected dynamism in July, and the country has now regained the 22 million jobs destroyed with the pandemic, while the unemployment rate fell to 3.5%, as in February 2020. But the unemployment rate participation remained stable at 62.1%, compared to 63.4% in February 2020.
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The labor market should remain solid despite the rise in the Fed’s key rates, according to Ms. Bowman, who warns, however, of the risk that our actions could slow job creation, or even reduce employment.
However, she believes that the greatest threat to the strength of the labor market is excessive inflation, which could lead to a prolonged period of economic weakness coupled with high inflation, such as (…) in the 1970s.
The contraction in GDP in the first two quarters of 2022 is perhaps an indication that our measures (…) are having the intended effect. It does not foresee a recession, but a resumption of growth in the second half, followed by moderate growth in 2023.
Fed rates are between 2.25 and 2.50%.