A US Central Bank (Fed) official on Saturday appealed to the institution to keep raising its key rates sharply until inflation actually drops. The Fed raised rates by 0.75 points at the end of July, a much larger increase than the usual quarter point.
“Similar increases in magnitude should be considered so that we see inflation declining consistently, purposefully, and sustainably,” Fed Governor Michelle Bowman said.
“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 added.
Inflation was 6.8% in one year in June, according to the personal consumption expenditures index favored by the Federal Reserve, and 9.1% according to the CPI. Michelle Bowman discusses “There is a significant risk of higher inflation rates next year for basic necessities, including food, shelter, fuel and vehicles.”. Especially since the labor market also remains tight, with a shortage of labour. but, “One aspect of the labor market that has not recovered is participation”The ruler notes: Nearly four million people (in) always missing”.
The labor market showed unexpected dynamism in July, and the country has now restored 22 million jobs destroyed by the epidemic, while the unemployment rate has fallen to 3.5%, as in February 2020. But the participation rate has remained stable at 62.1%, compared to 63.4% in February 2020.
No recession in sight
The labor market must remain “Solid” Despite the Fed’s key rate hike, according to Michelle Bowman, who cautions nonetheless“The risk that our actions will slow down job creation, or even reduce it”. However, I found it “The biggest threat to the strength of the labor market is hyperinflation.”which may lead to “A prolonged period of economic weakness accompanied by high inflation, as (…) in the 1970s”.
GDP contraction in the first two quarters of 2022 “Maybe it is an indication that our measures (…) have the desired effect.. She doesn’t envision a recession, but “Resume growth” The second half, followed byModerate growth in 2023. Federal Reserve rates are between 2.25 and 2.50%.
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