The American central bank (Fed) is ready to accelerate the rise in its rates in 2022, its president Jerome Powell assured Monday, while another official anticipates a continued acceleration of inflation until the winter.
If we conclude that it is appropriate to act more aggressively by raising policy rates by more than 25 dots basis (a quarter of a percentage point, editor’s note) during a meeting or several meetings, we will do it, declared Jerome Powell during the annual conference of the National Association for Business Economics (NABE).
The Fed raised its key rates on Wednesday, for the first time since 2018, in order to fight against inflation which is at its highest. for 40 years.
She opted for a moderate first up, a quarter of a percentage point, not a straight half point, which would have been an unusually quick move. Key overnight rates, which had been in a range of 0 to 0.25% since March 2020, are therefore now between 0.25 and 0.50%.
And several new increases are expected in 2022, perhaps even one at each meeting. The majority of those in charge of the Monetary Committee see the rates settling at around 1.75% end of 2022.
But if we determine that we need to tighten beyond the measure considered neutral of 2% or 2.5%, we will also do so, underlined the chairman of the powerful Federal Reserve.
Up to 3%? No, it’s not something we are considering, he replied, however, when questioned at the same conference.
Slowing down inflation without dragging down the economy is like a delicate balancing act for the Fed. But Jerome Powell has, once again, ensured that he does not see a high risk of recession next year, because the American economy is very, very solid.
It’s missing 5million people to the labor market so that all vacant jobs can be filled, he explained.
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Inflation, main concern
The priority of the powerful Federal Reserve is therefore to fight against this continuous rise in prices, which represents a threat to the economy.
The outlook for inflation had deteriorated considerably this year even before the invasion of Ukraine by Russia, Jerome Powell further noted.
On Wednesday, the Fed’s monetary committee had doubled its inflation forecast for 2022 compared to what it forecast in December, now counting on 4.3%.
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And Atlanta Fed President Raphael Bostic warned Monday that inflation could continue to accelerate. until the beginning of winter then only start slowing down.
My initial view was that inflation would probably start to decelerate this spring. It is almost certain now that this will not happen, he lamented during a speech at the NABE conference as well.
The control of high inflation rates is my main concern for 2022, further underlined this member, not voting this year, of the monetary policy committee of the Fed.
Raphael Bostic told reporters on Monday that he is comfortable with a more aggressive Fed hike, if that’s what the data suggests is appropriate, even going so far as to raise the possibility of a one-point hike. percentage at once if necessary. Or slow down, depending on the situation.
He also stressed the need, in his view, to start bringing the (Fed) balance sheet back to more normal levels, and faster than what we have done before. This could start as early as May, at the next meeting, added Jerome Powell on Monday.
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