A governor of the United States Federal Reserve (Fed), Christopher Waller, yesterday said he was open to the idea of a one percentage point hike in its key rate, which would be the first in more than 30 years, at a time when the institute is putting all its energy into calming galloping inflation.
At the beginning of July, the senior official repeated that he was in favor of a further increase in key rates by three quarters of a point at the meeting of the Fed’s monetary policy committee (FOMC), scheduled for July 26 and 27. But on Wednesday, the Labor Department reported that consumer price inflation accelerated further in June in the United States, hitting 9.1% year on year.
However, in this context, raising rates by 0.75 points would have an “almost neutral” impact in the sense that it “would neither stimulate nor restrict demand”, argued Christophe Waller yesterday, according to the text of a speech that he had to pronounce. The governor finally assured that he would be in favor of “a larger increase” if, between now and the next FOMC meeting, “indicators on retail sales or real estate (turn out to be) higher than expected (…) insofar as it (would show) that demand is not slowing fast enough to bring down inflation”.
The Fed started in March to raise key rates aggressively to curb demand and calm this rise in prices, one of its missions being to ensure that inflation does not get out of control. It even raised them by three-quarters of a percentage point in June, its largest increase since 1994. These rates, which set the tone for loans granted to individuals and businesses, are now in a range between 1.50% and 1.75%.
The Fed is scrambling to curb inflation all the more as its credibility is at stake, its officials having maintained for months that the rise in prices would only be temporary.
Current inflation, at its highest since 1981, threatens growth as consumption is the main driver of the US economy.
It also weighs on the popularity of American President Joe Biden, a few months before an important electoral deadline with the renewal of a large part of the elected representatives of Congress.
After the release of price numbers on Wednesday, the scenario of a one-point rate hike at the next Fed meeting gained traction. It would be a first since the 1980s.
“With inflation so high, it seems virtuous to tighten (monetary policy) quickly” because it will boost confidence in the Fed’s ability to bring inflation down, Waller said.
The senior official also considered that while certain indicators suggested that “the risks of a recession had increased”, such a scenario remained “avoidable”, particularly in view of the solidity of the job market.
Source: AFP
A governor of the United States Federal Reserve (Fed), Christopher Waller, yesterday said he was open to the idea of a one percentage point hike in its key rate, which would be the first in more than 30 years, at a time when the institute is putting all its energy into calming galloping inflation. At the beginning of July, the senior official repeated that he was in favor of a…
