Likely to raise interest rates to 1.9% by year-end to curb inflation

Federal Reserve Chairman Jerome Powell hinted at the possibility of a higher interest rate hike than the 0.25 percentage point increase seen in the latest hike. (Source: CNBC)

The Fed’s quarterly economic forecast released last week showed that most Fed officials expect the federal funds rate to rise to 1.9% by the end of the year and to about 2.8% by the end of the year. year 2023.

Speaking at the annual Economic Policy Conference of the National Association of Business Economists (NABE) taking place from March 20-22 in Washington, D.C., Mr. Powell said that the Fed’s assessment of inflation Inflation in the US is too high, threatening the strong recovery of the economy.

Given the above situation, Mr. Powell left open the possibility that the Fed will be able to raise the federal funds rate by more than 0.25 percentage points if the meetings conclude that this is necessary. According to him, the rate hike will continue until inflation is under control. The Fed can even tighten monetary policy more if necessary to stabilize prices.

Also in his speech, Mr. Powell assessed that the job market, despite a strong recovery, is facing many challenges. Managers are struggling to cope with a labor shortage, while many people have not yet returned to the labor market after the Covid-19 epidemic.

According to Mr. Powell, the US labor market is in a state of imbalance when recruitment demand is higher than the size of the labor force by about 5 million jobs. However, the head of the Fed expressed optimism that the central bank can curb inflation and stabilize the labor market without pushing the US economy into a recession.

Even with the oil price shock caused by the Russia-Ukraine tensions, Mr. Powell emphasized that the world’s leading economy is still growing strongly and is now in good shape to be able to handle the effects of the tightening. monetary policy. However, he also warned that unpredictable developments in Russia-Ukraine tensions and Western sanctions against Russia could have a significant impact on the US economy.

In February 2022, consumer prices in the US hit a new record high, in the context that the US economy is facing high inflation and this situation is likely to persist, due to the impact of the pandemic. tense situation in Ukraine.

Accordingly, the consumer price index (CPI) in February was 7.9% higher than the same period last year. This was the strongest increase since January 1982, when oil, food and housing prices all rose, the US Department of Labor said.

An increase in CPI means an increase in the average price of goods and services. This index helps to assess the level of inflation of the economy.