The Federal Reserve (Fed) of the United States will have to stick to its policy of raising interest rates until at least early 2023 to ensure that inflation reaches the 2% target, Governor Christopher Waller said.
Waller, who favors another significant rate hike, argued that the robust labor market and the fact that a recession has been averted allow the Fed to continue to move aggressively to fight price increases.
“Recession fears that surfaced in the first half of the year have faded and the robust labor market gives us the flexibility to be aggressive in our fight against inflation,” Weller said.
“It will take some time before inflation returns to our 2% target (…) Thus, the Fed will continue to adjust its rate policy until 2023,” he added.
For her part, Esther George, president of the Kansas City Fed, advocated a sustained monetary policy response to inflation.
“We will have to determine the course of our monetary policy through observation and not by reference to theoretical models or pre-pandemic trends,” George said at a conference at the Peterson Institute for International Economics.
“Given the likely delays in transmitting tighter monetary policy to actual economic conditions, this argues for consistency and determination rather than speed,” he said.
George’s remarks signal his support for a slower, but perhaps more sustained, response to price pressures.
inflation will decrease
According to the Financial Times, the continued fall in gasoline prices will cause inflation to decline for the second consecutive month in August, however, that will not stop the Fed from raising rates.
“Some economists say that consumers are spending less on goods and companies have increased the supply of their products to meet demand, which would also help to stop the increase in prices,” they mentioned.
Economists consulted by Reuters estimate inflation of 8.1% annually in August compared to 8.5% in July.
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