March 31, 2023
The US Federal Reserve governor has predicted further monetary tightening in 2023

The US Federal Reserve governor has predicted further monetary tightening in 2023

The director of the Federal Reserve (the Fed, America’s central bank), Christopher Waller, joined a panel of North American central bank directors who have defended a more aggressive hike in interest rates at a meeting of the Federal Open Market Committee (FOMC). , abbreviated in English) this month. He didn’t specify what size increase he wanted, but discussions centered on a third straight 75 basis points or a moderate hike in the tightening rate to 50 basis points.

“I support a continued increase in the prime rate and based on what I know today, I support a significant increase at our next meeting on September 20-21 so that the prime rate is in a situation where demand is clearly restrained,” he summed up. Waller, during a speech at the Vienna Macroeconomics Workshop this Friday.

As for the upcoming meetings later this month, Waller emphasized that the size of interest rate hikes will depend on the data and its implications for US activity.

According to him, the latest inflation and employment data indicate that the Fomc’s next meeting will be “lively,” underscoring the Fed’s current accommodative posture. Waller believes interest rate hikes won’t start until 2022, but will extend into next year. However, he did not comment on the possibility of cutting interest rates in 2023, as assessed by a section of the market.

Waller also commented on the slowdown in U.S. inflation in July, saying it was an “encouraging sign” but did not show that prices are slowing toward the Fed’s 2% target. He added that until this objective is achieved, the Fomc will continue its offensive stance to combat inflation.

If the core consumer price index (PCE) follows the Federal Reserve’s latest projections — which expect a 4.3% annualized rise in the fourth quarter of 2022 and a slowdown to a target of 2% in 2023 and 2024 — the current cycle of monetary tightening, according to the director of Terminal Interest North America B.C. 4 % will be

However, the chairman cautioned that the current situation is highly uncertain and it is impossible to rely on June forecasts with certainty. If inflation surprises and does not moderate significantly later this year, U.S. policy rates should be “higher” than 4%, Waller said.

At the same time, interest rates are likely to rise below 4% if inflation improves more than expected, he said.

Waller, however, insisted that the Fed funds rate should be raised to a level “significantly above the neutral rate,” which neither stimulates nor reduces activity. According to the director of the US Federal Reserve, this is necessary to avoid the anchoring of inflation expectations, especially long-term expectations, which have risen “only slightly” – a sign that there is confidence in the central bank. Monetary policy, he argued.

Another point to focus on should be nominal wages, which are rising rapidly, Waller said. As for activity, the central banker said there are already signs of a slowdown in the U.S., prompting the central bank to cut rates.

At the same time, he said, the latest employment data “further buried” the argument that the country is in recession. “As long as the unemployment rate stays below 5%, we can be very tough on fighting inflation.”

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