Source: Wall Street News
At present, most Fed presidents believe that the Fed will raise interest rates by 50 basis points at the FOMC meetings in June and July, but there are serious differences on the path of interest rate hikes after that.
Atlanta Fed President Raphael Bostic expects the central bank to raise rates by 50 basis points in each of the next two meetings before pausing in September.
“I’ve got a basic idea that I think a September pause (rate hike) is probably justified,” Bostic told reporters after a speech at the Rotary Club of Atlanta on Monday.
While the Fed may have to take more aggressive steps, “I’m an optimist and I think inflation has definitely started” by then, Bostic said.
FOMC voter and Kansas City Fed President Esther George was less optimistic than Bostic, saying in a speech at a separate event later in the day that the Russia-Ukraine conflict and the current coronavirus situation could exacerbate inflationary pressures.
On top of that, the Covid-19 pandemic has changed the U.S. economy in many ways, she said, leaving labor supplies tighter than expected and the services sector struggling to restore capacity after massive layoffs early in the crisis.
She also said the trillions of dollars in “excess savings” of U.S. households could be the biggest obstacle to shrinking the Fed. Once “excess saving” is transformed into “excess consumption”, will the trend of the US inflation rate become more outrageous?
Adding to the trouble, the Federal Reserve will start shrinking its nearly $9 trillion balance sheet on June 1 to match interest rate hikes and curb soaring inflation.
The U.S. stock market is suffering a slump as the Fed ramps up its tightening policy, with far more turbulence than the last time the Fed shrunk its balance sheet. Even so, George suggested that market turmoil won’t change the Fed’s tightening plans.
George said:
The road ahead can be rough.
The challenge for the Fed now is to ensure that policy tightening can contain the highest rate of inflation in 40 years without tipping the economy into recession.
Both chairs agreed on how tough the Fed’s task was, as investor concerns grew over factors including slowing global growth and the U.S. economy’s ability to respond to higher interest rates and falling stock markets.
According to Bloomberg, investors expect the Fed to continue raising rates this year, with the federal funds rate reaching a range of 2.75-3% by the end of 2022.
The big hawk, this year’s voter, St. Louis Fed President Bullard said last week: ” There should be a way to get the federal funds rate to 3.50% by the end of 2022. ” 50 basis points of rate hike.
Some expect the Fed to slow the pace of rate hikes after July.
Bostic doesn’t expect much volatility in interest rates, with the federal funds rate in the 2-2.5% range by the end of 2022.
Editor/Corrine
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