Fed’s: Stricter Policy Measures Set to Stay for the Long Time
Fed’s: Tighter Policy, for a Longer Time, ‘likely’ needed
San Francisco Fed’s President Mary Daly on Saturday issued a stark warning of the threat of inflation, suggesting the U.S. central bank could raise interest rates further and hold them longer than expected.
While the Fed’s preferred measure of inflation fell to 5.4% in January, from a high of around 7% in mid-2022, the latest monthly data showed that price pressures were building fastest pace in seven months.
Despite the Fed’s most aggressive rate hikes in 40 years last year, its benchmark rate has fallen from near zero in March to a current range of 4.5% to 4.75%.
January’s acceleration in inflation “suggests that the deflationary momentum we need is far from certain,” Daly said in prepared remarks for the Princeton Economic Policy Symposium. “Additional, and longer, tightening may be needed to escape this high inflation.
From Daly, whose views are generally aligned with Fed leadership, the comments are likely to add to speculation that Fed policymakers will raise interest rates in the coming months above of the majority set in December at 5.1%.
Fed policymakers to issue new forecasts for politics and the economy at the end of the March 21-22 meeting
Some traders are even betting that the Fed to raise rates by 50 basis points in March, up from 25, 1 percentage point rate hikes seen as most likely – sort of a throwback to hyper-aggressive US stance
Central banks have been chasing it for most of the last year.
Daly didn’t use his prepared remarks to say how steep the rate hike should be in March, or how high rates should be.
Yet she paints a difficult picture for the Fed, not only of persistently high inflation, but also of a host of new pressures that could lead to higher inflation for some time to come, including the efforts of companies to move production from factories in the United States. The United States has a persistent shortage of labor overseas and at home.
She also mentioned that there could be additional pressure on prices as companies pass on to consumers the cost of switching to low-carbon energy in the fight against climate change.
She said she was particularly concerned about the possibility – so far unproven – that the psychology of inflation is taking hold of Americans’ minds and could make the Fed’s inflation fight more difficult.
“Achieving our statutory goals will take time and a broader perspective,” she said. “As policymakers, we need to react to changes in the economy in real time and prepare for future economics conditions.”
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