Image Source: Andrew Harrer | Bloomberg | Getty Images
The Federal Reserve Governor, Christopher Wallace, said on Monday that interest rates are set to increase throughout 2022 to help the country with the worsening inflation.
Waller explained that the increase of the rates might push above the “neutral” level, which could either support the growth of the market or otherwise. “Over a longer period, we will learn more about how monetary policy is affecting demand and how supply constraints are evolving,” Waller said. “If the data suggest that inflation is stubbornly high, I am prepared to do more.”
Waller says that the benchmark borrowing rate set by the Feds might go up higher than expected. However, market expectations are in the range of 2.5% to 2.75%.
A Federal Open Market Committee meeting done in early May revealed that authorities believe “a restrictive stance of policy may well become appropriate depending on the evolving economic outlook and the risks to the outlook.”
The minutes of this meeting also agree with what policymakers have to say about rates increasing by 50 basis points. This decision is inevitable, according to the Feds; they believe it’s necessary in order to curb inflation rates.
“In particular, I am not taking 50 basis-point hikes off the table until I see inflation coming down closer to our 2 percent target,” Waller further explained.
“And, by the end of this year, I support having the policy rate at a level above neutral so that it is reducing demand for products and labor, bringing it more in line with supply and thus helping rein in inflation.”
In recent data, inflation accelerated in April; however, it is slower compared to the months before. As an answer, the Feds plan on raising rates and lowering demand. They aim to lower down labor demand while disallowing the unemployment rate to go up. The Bureau of Labor Statistics revealed that there are 5.6 million more job opportunities than there are American workers.
“Of course, the path of the economy depends on many factors, including how the Ukraine war and COVID-19 evolve. From this discussion, I am left optimistic that the strong labor market can handle higher rates without a significant increase in unemployment,” Waller said.
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