US News A Fed official pleads in favor of a high increase in rates to bring inflation to 2%

00:40  08 august  2022
00:40  08 august  2022 Source:   latribune.fr

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Michelle Bowman, une gouverneure de la Fed, s'exprimant devant l'Association des banquiers américains à San Diego, en juin 2019. supplied by Tribune Michelle Bowman, a governor of the Fed, speaking before the association of bankers Americans in San Diego, in June 2019.

An official of the American Central Bank (Fed) pleaded on Saturday so that the institution continues to highly raise its guiding rates until inflation really decreases. The Fed increased its rates by 0.75 points at the end of July, a much higher increase than the usual quarter.

"Similar size increases should be considered until we see inflation decreasing in a coherent, significant and sustainable manner," said Michelle Bowman, a Fed governor, in front of the Kansas banker association.

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"It is absolutely essential that we continue to use our monetary policy tools until we succeeded in bringing inflation back to our 2%goal," she added.

Labor shortage

Video: The Fed strikes hard to shoot down inflation (Dailymotion)

Inflation reached 6.8% over a year, according to the PCE index, favored by the Fed , and 9.1%, according to the CPI index. Michelle Bowman evokes "a significant risk of high inflation next year for basic necessities, including food, housing, fuel and vehicles". Especially since the labor market, too, remains tense, with a shortage of labor. However, "one aspect of the labor market that has not straightened up is participation," notes the governor: "nearly four million people (in) are still absent".

The job market showed an unexpected dynamism in July, and the country has now found the 22 million jobs destroyed with the pandemic, while the unemployment rate fell to 3.5%, as in February 2020. But The participation rate remains stable, at 62.1%, compared to 63.4% in February 2020.

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No recession in view

The labor market should remain "solid" despite the increase in Fed guiding rates, according to Michelle Bowman, who nevertheless warns of "a risk that our actions slow down job creations, or even reduce employment". However, she judges that "the greatest threat to the vigor of the labor market is excessive inflation", which could lead to "an extended period of economic weakness coupled with high inflation, like (...) in the 1970s ".

The contraction of GDP in the first two quarters of 2022 "is perhaps an indication that our measures (...) have the expected effect". It does not envisage recession, but "a resumption of growth" in the second half, followed by "moderate growth in 2023". Fed rates are between 2.25 and 2.50%.

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