Senior Fed officials report 2022 interest rate hikes on the table

On Monday, two senior Federal Reserve officials said the central bank could raise US interest rates by the end of 2022 on the basis of the rapid economic recovery and a long period of inflation. high.

Fed leadership has been divided over whether the first rate hike since the start of the pandemic would take place in late 2022 or early 2023. Yet Wall Street DJIA,
+ 0.39%
is increasingly led to believe that the Fed will act sooner, and senior Fed officials also appear to be more receptive.

Federal Reserve Vice Chairman Richard Clarida on Monday reiterated his view that the criteria for a rate hike could be met before the end of 2022.

Clarida is considered close to President Jerome Powell. His comments could be taken as a sign that senior Fed officials may be more open to a rate hike sooner than expected due to spike in inflation.

Prices have risen 4.4% over the past year using the Fed’s preferred PCE inflation indicator and an even higher 5.4% based on the Consumer Price Index plus known.

Clarid acknowledged that the increase in inflation this year was more than a “moderate overshoot” of the Fed’s average 2% target. And he pointed out that the Fed is watching closely.

“I wouldn’t consider another performance next year to be a political success,” he said.

Read: Fed still thinks spike in US inflation won’t last, but it’s now hedging its bets

Yet Clarida has stuck to the view, echoed by Powell, that inflation will slow sharply in 2022 to around 2.25% as labor shortages and bottlenecks in the industry. supply will diminish.

“Most of the inflation will turn out to be transient,” Clarida said during a panel sponsored by the Brookings Institution.

St. Louis Federal Reserve Chairman James Bullard has been more direct. In an interview with Fox Business, he said he expects the central bank to hike interest rates twice in 2022.

Bullard also said he believed the Fed could speed up its reduction plans.

Bullard said persistent bottlenecks and “one of the hottest job markets” since World War II could keep inflation high until 2022. He predicts that the unemployment rate will fall to 3% by next year.

If that turns out to be the case, he said, the Fed could complete its cut before next June as planned.

“We have a bit of inflation,” Bullard said.

Read: The mystery of the missing millions, the only flaw in a strong US jobs report

The Fed announced last week that it would start reducing or phasing out its massive purchases of U.S. Treasuries and mortgage-backed securities starting this month. The central bank bought $ 120 billion a month in securities as part of an effort to keep U.S. interest rates low

“We have done a lot to move Fed policy in a more hawkish direction,” said Bullard, himself one of the more hawkish members of central bank management.

Bullard will be a voting member of the bank’s federal free market committee responsible for setting interest rates in 2022.

While bond purchases have helped the economy recover, some Fed critics also argue that it has contributed to the rise in inflation. The United States has recovered so quickly and is growing so strongly that shortages have developed throughout the economy. These shortages triggered the surge in inflation.

Bullard has set two interest rate hikes before the end of 2022, but half of his colleagues still don’t expect the first rate hike before 2023, based on the most recent dot plot forecast of the FOMC.

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