US interest rate hike “depends on data”
Amidst the highest inflation rates in 4 decades
Wednesday – 22 Rajab 1443 AH – 23 February 2022 AD Issue No. [
An official at the US Federal Reserve announced that it expects a high rate of inflation during the first half of 2022 at least (Reuters)
Washington: Asharq Al-Awsat.
An official at the US Federal Reserve announced yesterday (Monday) that it expects a high inflation rate during the first half of 2022 at least, and therefore supports raising interest rates next March, even if the rate depends on the data.
“I am in favor of raising the federal funds rate at our next meeting in March,” said Michael Bowman, a member of the Fed’s board of governors, stressing that if the economy develops as you expect, “a further rate hike would be appropriate in the coming months.” It did not specify the extent of the increase it expects at this stage. “I will monitor the data closely to judge the appropriate size of the increase,” she said in a speech to a banking conference.
And US inflation is at its highest rate in four decades, which has damaged the popularity of President Joe Biden, and dealt a blow to families and businesses in the world’s largest economies. The markets are awaiting the first increase in interest rates during the meeting of the Monetary Policy Committee of the Bank on March 15-16. Some economists expect an increase of 50 percentage points, twice the normal increase.
Bowman expected “the continuation of a high rate of inflation during the first half of 2022 at least,” and said: “We may see indications of a decline in inflation in the second half of the year, but there are significant risks of continuing a high rate of inflation.”
She said labor market conditions are “currently in line” with the Federal Reserve’s goal of securing full employment. The unemployment rate reached 4% last January, and employers are facing a problem related to a large shortage of labor.
Another measure that would help slow inflation would be balancing the Federal Reserve. The Central Bank has been seeking since last November to reduce its monthly purchases of stocks and bonds, aimed at supporting the economy in the face of the repercussions of “Covid-19”, and purchases will be reduced to zero by March.
“This will remove another source of unnecessary stimulus to the economy,” Bowman said, adding that “in the coming months, we have to take the next step, which is to start shrinking the Fed’s budget by stopping reinvesting in maturing bonds already in the portfolio.”
Bowman’s comments highlight divisions among Fed monetary policymakers over the pace to begin raising interest rates.
“I, as well as all of my colleagues, will be watching the data closely to assess the appropriate size of an interest rate increase at the March meeting… and I intend to support immediate and decisive action to bring down inflation,” she said in comments to the Association of American Bankers in Palm Desert, California.
Ahead of the next Fed meeting, another report on US inflation and monthly jobs numbers will be released and the central bank will study them while monetary policy makers also keep an eye on escalating geopolitical tension sparked by fears of a possible Russian invasion of Ukraine.
Investors now see an 83% chance of a quarter-percentage point increase in the key interest rate at next month’s Fed meeting.