THE FEDERAL RESERVE

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CNBC

"Fed promises ‘unconditional’ approach to taking down inflation in report to Congress"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, JUN 17 2022

KEY POINTS

* Fed officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability.

* “The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress.


Federal Reserve officials rolled out strong language Friday to describe their approach to inflation, promising a full-fledged effort to restore price stability.

In its annual report on monetary policy – a precursor to Chairman Jerome Powell’s appearance before Congress next week – the central bank promised it would launch a full effort to bring down inflation pressures running at their fastest pace in more than 40 years.

“The Committee’s commitment to restoring price stability — which is necessary for sustaining a strong labor market — is unconditional,” the Fed said in a report to Congress.

That marks the Fed’s strongest statement yet, affirming its commitment to continue raising interest rates and otherwise tightening policy to solve the economy’s paramount issue.

The statement did not elaborate on what “unconditional” means.

Earlier this week, the Fed raised its benchmark interest rate three quarters of a percentage point in a further effort to slow demand.

Market participants worry that the Fed tightening could bring on a recession, though Powell said he still thinks that can be avoided.

That rate hike came after a move in May to raise rates by half a point.

This week’s move was the most aggressive since 1994.

Along with rate hikes, the Fed also is reducing assets from its $9 trillion balance sheet by allowing some proceeds from bonds it holds to roll off.

Earlier in the day, Powell himself made a similar vow, saying he and the rest of the Fed are “acutely focused” on bringing down inflation.

https://www.cnbc.com/2022/06/17/fed-pro ... gress.html
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REUTERS

"Fed vows 'unconditional' inflation war, says soft landing still possible"


By Ann Saphir and Lindsay Dunsmuir

June 17, 2022

June 17 (Reuters) - The Federal Reserve, fresh from its biggest interest rate hike in more than a quarter of a century, signaled on Friday it will not let anything stand in the way of its battle to bring down the searing inflation that's punishing American households.

"The Committee's commitment to restoring price stability - which is necessary for sustaining a strong labor market - is unconditional," the Fed said in its twice-yearly monetary policy report to Congress, referring to the U.S. central bank's rate-setting Federal Open Market Committee.

Fed Chair Jerome Powell will testify in Congress next week, updating lawmakers on the Fed's plans to fight 40-year high inflation while also pursuing maximum employment, its two sometimes conflicting jobs.

The central bank on Wednesday raised the range for its policy rate by 75 basis points to 1.50%-1.75% and published forecasts showing most policymakers support lifting borrowing costs further this year to perhaps 3.4%, and higher in 2023.

Economists say such sharp increases could spark a recession.

The report's use of the word "unconditional" suggests that the Fed is willing to risk just that in order to avoid what it sees as a far worse situation where inflation gets out of control and exerts far more damaging long-term harm.


On Friday - the first day that Fed rules allow any policymaker other than Powell to publicly air their views following a policy meeting - St. Louis Fed President James Bullard said he believes both the Fed and the European Central Bank will be able to avoid causing a deep recession with their rate hikes.

"The Fed and the ECB have considerable credibility, suggesting that a soft landing is feasible in the U.S. and the euro area if the post-pandemic regime shift is executed well," Bullard said at the Barcelona School of Economics Summer Forum.

That's different, he noted, from what happened the last time the Fed fought inflation at these levels, under former Fed Chair Paul Volcker in the 1980s.

Volcker's aggressive tightening caused not one but two recessions.

"The Volcker disinflation was costly, but it was not credible initially - Volcker had to earn credibility," said Bullard, who has been a vocal backer of the increasingly aggressive actions the Fed has taken since March, when it raised its benchmark overnight interest rate by a quarter of a percentage point, and followed that up with a half-percentage-point increase in May and the 75-basis-point hike on Wednesday.

'PRUDENT STRATEGY'

Minneapolis Fed President Neel Kashkari, in an essay published on the regional bank's website, said he supported this week's rate decision and could support another similar-sized hike in July, but said the Fed should be "cautious" about doing too much too fast.

"A prudent strategy might be, after the July meeting, to simply continue with 50-basis-point hikes until inflation is well on its way down to 2 percent," Kashkari said.

"Taking a steady approach to driving long real rates higher might help us avoid tightening more than is necessary to restore price stability, while ensuring that we do enough."

Powell earlier this week said in July policymakers will likely be choosing between a half-point hike or another 75 basis-point one, but said such bigger hikes won't be "common."

Traders in futures tied to the Fed's policy rate are currently pricing in a year-end range of 3.5%- 3.75%, which equates to an average increase of 50 basis points at each of the Fed's remaining four meetings this year.

One difficulty facing the Fed is that many of the factors driving inflation, and will determine the strength of the labor market going forward, are beyond the central bank's control.

"Further risks to global supply chains abound," the Fed noted in the semi-annual monetary policy report, underscoring that sentiment.

Still, the labor market remains strong, with unemployment at 3.6%, giving the economy what policymakers hope is some buffer against the pain of rising interest rates.

Fed policymakers on Wednesday projected unemployment rising to 4.1% by 2024, as growth slows to 1.9% and inflation falls to 2.2%, a scenario Powell said would be hard to achieve but represents a "soft-ish" landing.

On Friday the New York Fed published results from an economic model that it uses for its own forecasting that shows chances of a hard landing - defined as one quarter over the next 10 where GDP shrinks by at least 1% - are about 80%.

Kansas City Fed President Esther George, who dissented in this week's policy decision, said on Friday that she thought a bigger move added to policy uncertainty at the same time the Fed was also beginning to shrink its massive balance sheet.

Her objection to Wednesday's policy action notwithstanding, George said she shares the rate-setting committee's "strong commitment to bring down inflation to achieve our mandate for long-run price stability."

Inflation, as measured by the Personal Consumption Expenditures Price Index, is running at more than three times the Fed's 2% target.

Reporting by Ann Saphir, Dan Burns and Lindsay Dunsmuir; Editing by Paul Simao and Chizu Nomiyama

https://www.reuters.com/markets/us/feds ... 022-06-17/
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BLOOMBERG

"Yellen Says High Inflation Locked In for the Rest of 2022"


Saleha Mohsin

19 JUNE 2022

Treasury Secretary Janet Yellen said that “unacceptably high” prices are likely to stick with consumers through 2022 and that she expects the US economy to slow down.

“We’ve had high inflation so far this year, and that locks in higher inflation for the rest of the year,” she said Sunday on ABC’s “This Week.”
]

“I expect the economy to slow,” she said, adding: “But I don’t think a recession at all inevitable.”

US inflation accelerated to 8.6% in May, a fresh 40-year high that signals price pressures are becoming entrenched in the economy.

Those figures dashed any hope that inflation was starting to ebb, prompting the Federal Reserve to unleash its biggest interest-rate increase since 1994.

The reasons behind stubborn inflation are “global, not local,” according to Yellen, who pointed to disruption in energy supply from the war in Ukraine and goods coming in from China where Covid-related lockdowns continue.

“These factors are unlikely to diminish immediately,” she said.

Federal Reserve Bank of Cleveland President Loretta Mester echoed Yellen’s view that growth will slow down, saying that threat of a US recession is increasing.

“The recession risks are going up partly because monetary policy could have pivoted a little bit earlier than it did,” she said on Sunday on CBS’s “Face the Nation,” referring to criticism that the Fed failed to raise rates at the first signs of runaway inflation late last year.

Mester sees it taking several years for the year-on-year headline inflation rate to return close to the Fed’s 2% goal.


Soaring prices are hurting Americans and an economic downturn by the start of 2024, barely even on the radar just a few months ago, is now close to a three-in-four probability, according to the latest estimates by Bloomberg Economics.

Brian Deese, director of Biden’s National Economic Council, painted a rosier picture of the economy than Yellen and what Fed officials are saying.

Deese referred to “independent forecasters” who “see inflation beginning to moderate over the course of this year.”

He also expressed hope that congressional passage of a bill that would lower the cost of prescription drugs, offer tax incentives for energy and other measures will take the pressure off of household finances.

Yellen said a gasoline tax holiday is “worth considering” if it could help consumers weather inflation.

“We have real strengths in this economy,” Deese said on CBS, citing high household savings and a jobless rate of 3.6%.

He says the administration seeks to bring down inflation in a way “where we don’t have to give up all of those economic gains.”

Still, the Fed on Wednesday forecast that a key price index would only increase in coming months, leading to the distinct possibility of another jumbo three-quarter percentage point increase in July.

Higher interest rates are seen driving unemployment to 4.5%, according to one Fed official.

https://www.msn.com/en-us/money/markets ... 21a6a922c4
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THE WALL STREET JOURNAL

"Recession Probability Soars as Inflation Worsens"


Opinion by Harriet Torry, Anthony DeBarros

19 JUNE 2022

Economists surveyed by The Wall Street Journal have dramatically raised the probability of recession, now putting it at 44% in the next 12 months, a level usually seen only on the brink of or during actual recessions.

The likelihood of a recession has increased rapidly this year as inflationary pressures remained strong and the Federal Reserve took increasingly aggressive action to tame them.

Economists on average put the probability of the economy being in recession sometime in the next 12 months at 28% in the Journal’s last survey in April and at 18% in January.

Since the Journal began asking the question in mid-2005, a 44% recession probability is seldom seen outside of an actual recession.

In December 2007, the month that the 2007-to-2009 recession began, economists assigned a 38% probability.

In February 2020, when the last recession began, they assigned a 26% probability.

Forecasters have raised recession probability due to a number of factors: higher borrowing costs, a blistering pace of inflation, supply-chain problems and commodity-price shocks stemming from the war in Ukraine.

Mostly, however, they see dimming chances that a steeper path of rate increases by the Fed can cool inflation without inducing higher unemployment and an economic downturn.

“The Fed is slamming on the brakes."

"It is hard to avoid a recession…in this situation,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc.

The latest survey’s results showed a marked increase in economists’ forecast for inflation, which they see ending the year at 7%, up from 5.5% in the April survey.

The poll of 53 economists was conducted June 16 to 17, after the Fed voted to sharply raise the benchmark federal-funds rate by 0.75 percentage point to a range between 1.5% and 1.75%.

Economists see the federal-funds rate at roughly 3.3% at the end of this year, up from 2% in the survey two months ago.

That implies at least three more increases of 0.5 percentage point in 2022.

The Fed has signaled it would continue lifting rates this year at the most rapid pace in decades to fight inflation that is running at a 40-year high.

“We now believe the U.S. economy is headed for a mild recession in the coming months,” said Greg Daco, chief economist for EY-Parthenon, a consulting firm.

“While consumers will continue to spend freely on leisure, travel and hospitality over the summer, a persistently elevated inflation backdrop, surging interest rates and plunging stock prices will erode spending power, severely curtail housing activity and constrain business investment and hiring.”

Economists expect unemployment to rise as the Fed raises rates, although they see it staying at relatively low levels by historical comparison.

On average, they forecast unemployment rising from 3.6% in May to an average of 3.7% at the end of 2022 and 4.2% at the end of 2023.

One bright spot is that economists still expect the economy to grow this year, although they slashed their growth projection in half in the most recent survey.

On average, they see inflation-adjusted gross domestic product rising 1.3% in the fourth quarter of 2022 from a year earlier, down from 2.6% in the April survey.

Last year the economy grew 5.5%, the fastest since 1984, following a 2.3% drop in 2020 when the pandemic began.

Recent data suggest the U.S. economy is starting to slow under the combined weight of soaring inflation and climbing interest rates — including the highest mortgage rates since 2008.

Economists have slashed their projections for second-quarter output growth in recent days.

One closely watched model — the Federal Reserve Bank of Atlanta’s GDPNow tracker — estimates that gross domestic product is on track to remain unchanged at an annual rate over the three months through June 30.

Output fell at a 1.5% annual rate in the first quarter.

Write to Harriet Torry at harriet.torry@wsj.com and Anthony DeBarros at Anthony.Debarros@wsj.com

https://www.msn.com/en-us/money/markets ... 935f6de30f
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BUSINESS INSIDER

"The US economy will grind to a halt in the 2nd half of 2023 and the following year won't be much better, BofA says as it slashes its growth forecast"


bevans@insider.com (Brian Evans)

20 JUNE 2022

* Bank of America analysts expect US economic growth to slow to near zero by the second half of 2023.

* While the risk of a recession this year is low, BofA sees a 40% probability starting next year.

* And 2024 isn't looking much better, as analysts see only "a modest rebound" by then.


Bank of America has sounded the alarm on the US economy, predicting growth will stall next year and that the likelihood of a recession will surge.

In a note published on Friday — two days after the Federal Reserve hiked interest rates by 75 basis points — analysts said the Fed was too slow to aggressively tackle inflation, which is running at a 40-year high, and abruptly scrambling to get on top of it.

Now the bank sees GDP growth slowing to nearly zero by the second half of 2023 because of the influence of tighter financial conditions.

While the risk of recession this year is low, Bank of America sees a 40% probability starting next year.

And 2024 isn't looking much better, as analysts see only "a modest rebound" by then.

"Our worst fears around the Fed have been confirmed: they fell way behind the curve and are now playing a dangerous game of catch up," the note said.

Despite the Fed's more hawkish stance, the bank doesn't see inflation cooling enough to get down to the central bank's 2% target.

Instead, it will persist around 3%, it said.

While supply problems and demand for goods will ease, inflation expectations are anchoring at higher levels and wage pressures will likely be tough to reverse.

But the Fed is perhaps finally catching up to properly attack inflation, Bank of America said, and Wednesday's rate hike was a strong step in the right direction.

Still, analysts aren't confident the Fed will know what to do after it completes its tightening cycle.

While policymakers' forecasts suggest a rate cut in 2024, Bank of America doesn't think so: "Our baseline forecast assumes the Fed will be like a deer in the headlights: unsure over whether to react to very weak growth or still high inflation."

Even with its gloomy outlook, the bank said it's vulnerable to downside risk, noting external shocks from the Ukraine war, energy prices, and sanctions extending to Russian supporters like China.

The main domestic risk to the forecast is if the Fed is commits to lowering inflation to its 2% target because getting to there would require policy that's so tight it would trigger a recession.

For his part, Fed Chair Jerome Powell reiterated the central bank's posture Friday, telling conference attendees that "my colleagues and I are acutely focused on returning inflation to our 2% objective."

If the Fed does induce a recession, there is one bright spot, Bank of America said: "It is easier for the Fed to manage a sharp slowdown if Fed policy is the cause of the slowdown."

"For the same reasons we think that if there is a recession it will be mild."

https://www.msn.com/en-us/money/markets ... d0b53c3122
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REUTERS

"Fed's Evans: another big rate hike 'reasonable' for July"


By Ann Saphir

JUNE 22, 2022

(Reuters) - Chicago Federal Reserve Bank President Charles Evans on Wednesday signaled he would likely back another big interest rate hike in July unless inflation data improves, saying the Fed’s top priority is to “take the steam” out of price pressures.

“Seventy-five (basis points) is a very reasonable place to have a discussion,” Evans told reporters after a talk in Cedar Rapids, Iowa, when asked about his outlook for the Fed’s July policy decision.

“I think 75 would be in line with continued strong concerns that the inflation data isn’t coming down as quickly as we thought.”

The Fed raised rates by 75 basis points last week, to a target range of 1.5%-1.75%, and most policymakers see the policy rate at between 3.25%-3.5% by the end of the year.

Fast-rising rates do increase the risk of a downturn, Evans said.

“We’re obviously taking on risk when we want to slow demand, to keep it in line with supply,” Evans said.

“To think that we can fine tune something like this with tremendous precision -- I mean, we just don’t have that ability.”

Most Fed policymakers still believe a “soft landing” is possible, forecasting a slowdown in growth to just below its long-run trend of 1.8% next year, and an increase in the unemployment rate, now 3.6%, to 4.1% by 2024.

“The challenge for monetary policy that’s always trying to engineer a soft landing during a rising rate environment is something else happens and then that’s the additional shock that takes the economy down,” he said.

That was what happened in 1991, he said, when Iraq’s invasion of Kuwait tipped the economy into recession.


Russia’s war in Ukraine and China’s COVID lockdowns are among the risks, but that cannot stop the Fed from doing its job, he said.

“The first thing that we’re looking at is to make sure we take the steam out of the inflation pressures,” he said, adding that there is “tremendous” consensus at the Fed that rates need to be high enough to be modestly restrictive on growth.

Reporting by Ann Saphir; editing by Jonathan Oatis and Chizu Nomiyama

https://www.reuters.com/article/usa-fed ... SL1N2Y928O
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REUTERS

"Fed's Powell: committed to inflation fight, not trying to trigger recession"


By Ann Saphir and Lindsay Dunsmuir

June 22, 2022

June 22 (Reuters) - The Federal Reserve is not trying to engineer a recession to stop inflation but is fully committed to bringing prices under control even if doing so risks an economic downturn, U.S. central bank chief Jerome Powell said on Wednesday.

"We are not trying to provoke, and I don't think we will need to provoke, a recession," Powell said at a hearing before the U.S. Senate Banking Committee, although he acknowledged that a recession was "certainly a possibility" and events in the last few months around the world had made it more difficult to reduce inflation without causing one.

"It is essential that we bring inflation down if we are to have a sustained period of strong labor market conditions that benefit all," Powell said.

The Fed in coming months will be looking for "compelling evidence" of slowing price pressures before it eases up on the interest rate increases it kicked off three months ago.

Inflation continues to run at least three times higher than the Fed's targeted level of 2%.

A gauge of price increases that excludes volatile food and energy costs may have eased somewhat last month, Powell testified, but Russia's invasion of Ukraine and COVID-19 lockdowns in China are putting continued upward pressure on inflation.

One week ago, the Fed raised its benchmark overnight interest rate by three-quarters of a percentage point - its biggest hike since 1994 - to a range of 1.50% to 1.75%, and signaled rates would rise to 3.4% by the end of this year.

That steep rate hike path, designed to slow the economy, has sparked widespread concern about a recession and a weakening of labor markets, which Powell on Wednesday said were unsustainably hot.

On Wednesday, Powell reiterated that ongoing increases in the Fed's policy rate would be appropriate, with the exact pace dependent on the economic outlook.

He declined to rule out a 100-basis-point move if it proved warranted.

"Inflation has obviously surprised to the upside over the past year, and further surprises could be in store," he said, repeating that policymakers would need to be nimble in response to the incoming data.

'COUGHING UP BONES'

Since the June 14-15 policy meeting, a number of Powell's fellow policymakers have lined up behind his comments last week that the central bank will very likely need to raise rates by either 50 or 75 basis points at its next meeting in July.

Earlier on Wednesday, Philadelphia Fed President Patrick Harker said incoming data would govern which of the two options to deliver.

Chicago Fed President Charles Evans signaled later on Wednesday that he also is comfortable for now with continued rapid rate hikes, even as he nodded to the rising recession risk.

"To think that we can fine tune something like this with tremendous precision -- I mean, we just don't have that ability," Evans said.

Even so, he added, there's "tremendous" consensus at the Fed for getting rates into modestly restrictive territory.

"The first thing that we're looking at is to make sure we take the steam out of the inflation pressures," he said.

But in an indication of how inflation has emerged as a thorny political issue that threatens to tip the balance of power in Congress to Republicans in elections this November, Powell found himself under fire from both the left and right.

Senator Elizabeth Warren, a Democrat representing Massachusetts, took the Fed to task for pushing through rate hikes that raised the risk of a recession that could put millions out of work.

Republican Senator John Kennedy of Louisiana, in one of the more heated criticisms of the Fed's response to inflation, said inflation was hitting his constituents "so hard they are coughing up bones."


Overall, Powell did not stray far from his remarks in his news conference that followed the Fed's latest policy meeting, but his assertion that financial conditions had "tightened significantly" seems significant and may herald a slower pace of rate hikes, Karim Basta, chief economist at III Capital Management, wrote in a note.

Interest rate futures ticked higher through the course of Powell's appearance, as traders moderated expectations for additional big rate increases at the Fed's remaining four policy meetings of the year.

Economists polled by Reuters before the appearance see the Fed delivering another 75-basis-point interest rate hike in July, followed by a half-percentage-point rise in September, with no scaling back to quarter-percentage-point moves until November at the earliest.

Fed officials' latest projections see economic growth slowing to below trend this year while the U.S. unemployment rate - currently 3.6% - starts to tick higher.

Meanwhile, they now expect inflation by year-end to drop only to 5.2% by their preferred measure, which registered 6.3% as of April.

Reporting by Dan Burns, Ann Saphir and Lindsay Dunsmuir; Editing by Chizu Nomiyama and Paul Simao

https://www.reuters.com/markets/us/fed- ... 022-06-22/
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FOX NEWS

"Fed chairman contradicts Biden, says Russia’s Ukraine invasion not the main inflation driver"


Bradford Betz

22 JUNE 2022

Federal Reserve Chairman Jerome Powell on Wednesday appeared to contract President Biden’s repeated insistence that Russia’s invasion of Ukraine was the primary driver behind inflation in the U.S.

During a Senate Banking Committee hearing, Sen. Bill Hagerty, R-Tenn., got Powell to admit that inflation was high well before Russia’s Feb. 24 invasion of Ukraine.


Hagerty noted that in December 2021, inflation has risen to 7% – up from 1.4% in January 2021, when President Biden took office.

Since Russian tanks rolled across the border of Ukraine, inflation has risen incrementally to its current level of 8.6%.

With these statistics stated, Hagerty asked Powell if he believed the war in Ukraine was the "primary driver" of inflation as the Biden administration has tried to portray.

"No inflation was high … certainly before the war in Ukraine broke out," Powell said.

"I’m glad to hear you say that."

"The Biden administration seems to be intent on deflecting blame," Hagerty said, noting that as recently as Sunday, the administration "spread the misinformation that Putin’s invasion of Ukraine was the ‘biggest single driver of inflation.’"

"I’m glad you agree with me that that is not the truth," Hagerty told Powell.


Powell has sought to reassure the public that the Fed will raise interest rates high and fast enough to quell inflation, without tightening credit so much as to throttle the economy and cause a recession.

The central bank's accelerating rate increases – it started with a quarter-point hike in its key short-term rate in March, then a half-point increase in May, then three-quarters of a point last week – has alarmed investors and led to sharp declines in the financial markets.

Powell's testimony comes exactly a week after the Fed announced its three-quarters-of-a-point increase, its biggest hike in nearly three decades, to a range of 1.5% to 1.75%.

With inflation at a 40-year high, the Fed's policymakers also forecast a more accelerated pace of rate hikes this year and next than they had predicted three months ago, with its key rate reaching 3.8% by the end of 2023. That would be its highest level in 15 years.

The Associated Press contributed to this report.

https://www.msn.com/en-us/money/markets ... 59982ea970
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REUTERS

"Fed's Daly: want to raise rates as expeditiously as can"


By Reuters Staff

JUNE 24, 2022

June 24 (Reuters) - San Francisco Federal Reserve Bank President Mary Daly on Friday said that, with inflation high, the central bank wants to raise interest rates quickly as possible, adding that front-loading rate hikes means that ultimately the Fed will need to do less.

“One of the reasons I’m quite supportive of the policy actions we’re taking is that ultimately you want to get the rate up as expeditiously as you can,” Daly said.

(Reporting by Ann Saphir; editing by Jonathan Oatis)

https://www.reuters.com/article/usa-fed ... SS0N2X202V
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REUTERS

"Fed's Daly: bringing down inflation is 'number one priority'"


By Reuters Staff

JUNE 24, 2022

(Reuters) - Bringing down inflation is the U.S. central bank’s “number one priority right now,” but raising interest rates to do so is unlikely to trigger a recession, San Francisco Federal Reserve Bank President Mary Daly said on Friday.

The central bank’s 75-basis-point interest rate hike last week to a range of 1.5%-1.75% “puts policy on an expeditious path to netural by the end of the year,” Daly said in remarks prepared for delivery to Chapman University.

“After that, I see additional tightening beyond neutral as the next likely step,” she said.

Exactly how high rates need to go will depend largely on factors outside the Fed’s control, she said.

That is a point Fed Chair Jerome Powell has also emphasized because much of the current inflation stems from rising energy and food costs related to Russia’s war in Ukraine, and ongoing supply chain and labor supply constraints.

“If supply continues to fall short and inflation remains high, we will need to do more,” Daly said.

“If conditions improve and supply bounces back, we can do less.”

Either way, she said, the economy will likely slow and the unemployment rate will likely rise from the current 3.6% level.

But it is not likely to lead to the kind of painful recession that followed in the 1980s, the last time the Fed raised rates sharply to fight high inflation, she said.

The costs of adjusting to higher interest rates and slower growth will be smoother this time around, she said, in part because inflation expectations are much better anchored, and in part because higher rates should cool inflation by reducing excess demand for goods and labor, well before they start to cut into actual production and employment.

“I do expect the costs of adjustment to be moderate, with some slowing of GDP growth below its longer-run trend and an increase in the unemployment rate from the very low levels we see today,” she said.

“This would, to my mind, constitute a relatively smooth transition from a pandemic-wracked, highly accommodative economy to one in which tighter policy supports both full employment and price stability.”

Reporting by Ann Saphir, editing by Deepa Babington

https://www.reuters.com/article/usa-fed ... SL1N2YB1T0
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