Two Federal Reserve officials said on Monday that more interest rate hikes are needed to tame inflation, which is proving more persistent than thought.
One was Cleveland Federal Reserve Chair Loretta Mester, who said she believes prices need to go up “somewhat” and stay at that level.
Meester said she hasn’t made a decision on whether to raise rates at the next meeting yet, but hinted in a speech at the UC San Diego Economics Roundtable that the Fed’s next move might be to raise rates and then hold them there. the level. to collect more data.
“A slightly higher interest rate would roughly equalize the odds that the next policy move will be a tightening versus an easing move,” Mester said. “This would be a good holding point as we gather more information on whether the economy is developing as expected.”
The central bank decided to delay a rate hike at its last policy meeting in June while interest rates may continue to rise to 5.6%, which means two more rate hikes are likely this year.
Some Fed officials wanted to raise interest rates by 0.25% last month but agreed to the pause anyway, according to minutes from the June meeting of the Federal Open Market Committee (FOMC), the federal committee that decides on policy. The FOMC will meet again later this month, on July 25th and July 26th.
Meester said if she had acted alone at the last meeting, she would have voted for a rate hike, but she said the Fed did not like to surprise markets and there was a rationale for stepping back and assessing the impact of previous rate hikes.
“Going into this meeting there was an expectation that we weren’t going to raise interest rates,” Mester told reporters on a phone call on Monday. My reading of economic data and financial market data [was]If it were me alone, I would have raised the price, but I certainly understood the rationale for not moving in June.”
Another Fed official who has called for a rate hike is Bank of San Francisco President Mary Daley, who said two more hikes are needed this year to bring down inflation.
“I was in favor of slowing the pace of tightening, but I also recognize that we will likely need to raise interest rates twice over the course of this year to bring down inflation,” Daly said during a conversation at the Brookings Institution in Washington. . “The risks of doing too little outweigh the risks of doing too much, but that gap is narrowing.”
Both Daly and Meester don’t think the economy is in the clear yet when it comes to potential credit tightening from bank failures earlier this year although there isn’t much evidence that banks are getting tougher about lending outside of a rate hike by a bank. Federal Reserve.
“I don’t see anything when I talk to the banks and see what the banks are doing that would indicate that there is this additional tightening because of pressures in the banking industry,” Meester said. “But I think it’s something we have to watch because we don’t necessarily know the scale of that or the timing of that.”
Daly says she believes bank stress from the failures could amount to the equivalent of a 0.25% or 0.50% interest rate increase, but so far she says it appears to be lower. She noted that lending at the moment is not much lower than you would expect given the expected slowdown in the economy. But Daly also said it was too early to say clearly.
I don’t think we can announce that there is no credit shock from bank stress. “I think we’ll still see that coming in the coming months,” Daly said.
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