Washington (awp/afp) – A US central bank (Fed) official said on Monday that she expects high inflation for at least the first half of the year, and therefore favors a rate hike in March, the extent of which will depend on recent data.
“I support raising key rates at our next meeting in March,” Fed Governor Michelle Bowman said, stressing that “if the economy evolves” as she anticipates, “additional rate increases will be appropriate in the months to come”.
However, it does not specify the extent of the increase it envisages at this stage.
“I will be watching the data closely to judge the appropriate size,” she said in a speech to the American Bankers Association Community Banking Conference.
Faced with inflation at its highest for 40 years in the United States, and which now threatens the economy, the Fed should begin at its next meeting, on March 15 and 16, to raise its key rates. These have been, since March 2020, in the low range of 0 to 0.25%.
The officials of the monetary institution have multiplied the interventions to support this measure, but do not agree on the increase to be expected: will they raise the rates to 0.25-0.50%? Or at 0.50-0.75%, which would be an unusually steep rise?
Michelle Bowman anticipates that “uncomfortably high inflation will persist at least until the first half of 2022”.
“We could see signs of slowing inflation in the second half, but there is a substantial risk that high inflation will persist,” the governor warned.
It also judges that the conditions in the labor market are “currently consistent” with the full employment that the Fed is aiming for. The unemployment rate was 4% in January, and employers are facing a major labor shortage.
The other measure that should make it possible to slow down inflation will be the reduction of the Fed’s balance sheet. In March, asset purchases, which had allowed the Fed to support the functioning of the economy during the crisis, will be reduced to zero, after having been gradually reduced from November 2021.
This will “remove another unnecessary source of stimulus from the economy”, Ms. Bowman said, noting that “in the coming months, we need to take the next step, which is to start reducing the Fed’s balance sheet by ceasing to renew maturing securities already held in the portfolio”.
afp/rp
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