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Inflation: Fed officials say rate hikes will occur as inflation soars

Central bankers in the United States have made it clear in the last public comment before the upcoming January policy meeting. inflation It may be exacerbated by the current surge in COVID-19.

It’s “wise” Central Bank Following a dramatic improvement in the labor market and inflation, we will begin raising interest rates this year. Federal Reserve SystemFederal Reserve Bank of New York Governor John Williams announced a 2% target on Friday.

“Inflation is clearly higher than we want and hasn’t fallen yet,” Williams told reporters. “We are approaching such a decision. It makes sense.”

Williams didn’t say exactly when to anticipate the first rate hike, but this week about half a dozen policy makers have suggested that the Fed could raise rates from March.

The allegations of a possible rate hike in March reflect the policy constraints facing the Fed. growth, The rate remains at almost zero level.

In December, as the policy shackles became more apparent, policymakers began to cut bond purchases more quickly. Rate hike.. That possibility is almost certainly open, at least when measured by betting on financial markets. Interest rate futures traders see the possibility of an 86% rate hike in March.

Policy makers say that raising interest rates above today’s lows can begin the next step in removing support. That means offloading over $ 8 trillion in bonds accumulated to help lower long-term interest rates. However, they warn that the timing of these moves will depend on how long the economy will take to resolve the turmoil caused by the pandemic.

Omicron effect

Policymakers point out that the recent surge in infections caused by the Omicron COVID-19 mutant could slow economic growth and prolong supply chain disruption that contributed to excessively high inflation. Did.

Fed Governor Mary Daly said the Fed needs to raise interest rates to reduce demand and meet supply pressures.

“We will have to adjust our policies to ensure price stability,” Daily said in an interview with the New York Times on Twitter Space. “We want to bridal the economy a bit.”

Williams said the US economy could grow 3.5% this year. This is a retreat from the 2021 surge, but it is still strong.

“Once the wave of Omicron subsides, the economy should return to a solid growth trajectory and these supply constraints on the economy should decline over time,” Williams said in a virtual event hosted by the Council on Foreign Relations.

The Federal Reserve predicts that the labor market will continue to recover as the economy grows, and that this year’s unemployment rate will drop to 3.5%.

Inflation will drop to around 2.5% this year and nearly 2% in 2023, saying price pressures could ease as economic growth slows and supply constraints are lifted, Williams said. He added that he expected. Month.

Williams said raising interest rates “gradually” would be the next step in removing accommodation, but the exact timing and pace of these rate hikes depends on what happens in inflation and the economy. will do.

Inflation: Fed officials say rate hikes will occur as inflation soars Inflation: Fed officials say rate hikes will occur as inflation soars

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