The Federal Reserve will probably need two more rate hikes this year to continue its fight against US inflation although the pace of the central bank's monetary tightening also needs to be slowed to preserve growth, San Francisco Fed President Mary Daly said Monday
WASHINGTON (Pakistan Point News / Sputnik - 10th July, 2023) The Federal Reserve will probably need two more rate hikes this year to continue its fight against US inflation although the pace of the central bank's monetary tightening also needs to be slowed to preserve growth, San Francisco Fed President Mary Daly said Monday.
"We may end up doing less or more than a couple rate hikes this year, depending on the data," Daly said in a live-streamed discussion on the economy and interest rates. "Today, with the labor market still strong, the risks of doing too little (with inflation) are outweighing the risks of doing too much.� But it's appropriate to slow (the) pace of rate hikes."
Inflation, as measured by the Consumer Price Index, or CPI, hit 40-year highs in June 2022, expanding at an annual rate of 9.1%. Since then, it has slowed, growing at just 4% per annum in May, for its slowest expansion in two years. The Fed's favorite price indicator, the Personal Consumption Expenditures, or PCE, Index, grew by 3.8% in May.
The Fed's tolerance for inflation is, meanwhile, just 2% per annum.� In response to the runaway price growth since the end of the coronavirus pandemic in March 2022, the central bank has raised interest rates by 10 times, adding a total of 5% to the previous 0.25%. While the Fed paused its rate hike cycle last month, there is speculation it could resume that when it meets on July 26 for its next rates review.
The labor market has been the juggernaut of the US economy, adding hundreds of thousands of jobs a month over the past three years after initially losing 20 million to the COVID-19 pandemic.
The June jobs report for the United States, however, signaled some relief for the Fed's campaign in curbing inflation.� According to the Labor Department, US employers added only 209,000 non-farm payroll jobs last month, some 100,000 below the estimates. It was the first time in 16 months that the number wasn't higher than what was projected by economists.
Despite the smaller-than-forecast job growth, wages of Americans as a whole expanded by 0.4% in June from a 0.3% growth in May even as the unemployment rate dropped 3.6% from a previous 3.7%. The Fed has insisted that both job numbers and wages have to drop appreciably for it to discontinue rate hikes in the longer term.
Daly's colleague, Loretta Mester, who's president of the Cleveland Fed, told a separate event on Monday that she still regarded inflation as "stubbornly high."
"Wages pressures remain too high to get inflation back to 2%," said Mester, who admitted that she had wanted a rate hike � rather than a pause � in June.
But like Daly, Mester thought the Fed was making progress in its fight against inflation and that rate tightening had to be slowed at some point to preserve growth.
The economy, measured by real gross domestic product, grew by an annualized 2% in the first quarter of this year, the Commerce Department said last week in a report that also signaled that the Fed's rate hikes had not triggered a recession as yet.
