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(Reuters) – Federal Reserve officials are sharpening their chances of a higher interest rate rise than they thought a few months ago, as inflation continues to rise and the economy picks up speed.
Change President Joe Biden decides whether to keep Jerome Powell as Fed chairman for another term or to raise Governor Lael Brainard to that position. Earlier this week, Biden said he could make an announcement on Friday.
Whoever chooses Biden will face the thorny task of targeting the Fed’s two goals, stable prices and full employment, when there seems to be more and more conflict.
Powell and Brainard said the current rise in inflation will calm as supply chains are fixed next year, arguing that the Fed should keep interest rates at the bottom to give millions of Americans more time to lose their jobs or quit their jobs. to get a job in the pandemic, if they want to.
Many of their Fed colleagues have signed this approach, but prices are constantly rising to the challenge.
On Thursday, one of the most trusted political pigeons at the U.S. central bank said it was “broader” than it was six months ago to raise interest rates next year. Chicago Fed Chairman Charles Evans said the 2022 interest rate hike could be appropriate if inflation continues to hold the opposite.
“I wouldn’t describe my hair on fire or anything like that,” Evans told reporters after a speech. “But I’d say, I have to admit, it’s gone longer, things aren’t as clear as I expected; it’s hard patience, and there might be a little bit of movement sooner than you think, or maybe I’m totally wrong and we need to move.”
In addition, Atlanta Federal Reserve Chairman Raphael Bostic said the U.S. central bank believes interest rates could begin to rise in the middle of next year, based on employment forecasts.
“Right now, our forecasts suggest that by the summer of next year, the number of jobs we have in the economy will be where we were before the pandemic,” Bostic said in an interview with NPR’s Marketplace. “And at the moment, I think it’s appropriate to try to normalize our interest rate policy.”
Bostic said he was among half of Fed officials who thought it would be appropriate to raise the rate from next September onwards, but the public embrace of the rise to mid-2022 is new.
At a policy implementation meeting last month, Fed officials decided to start removing economic support from a $ 120 trillion in monthly asset purchases, which will be gradually reduced by next June.
Since then, some policymakers have called for a tougher turnaround and a quicker cut if a Fed rate hike is needed to be an earlier rise.
Evans rejected that view on Thursday. “The hope is that we won’t have to raise rates before (the end of the taper); the hope is that we won’t adjust (the taper) unless we see a big change in the data depending on the situation,” he said.
But traders are already adjusting their expectations, and the future of interest rates puts them at a unique opportunity to raise three rates before the end of next year.
In September only half of the Fed’s political leaders thought they would have to start raising rates next year, and the other half saw 2023 as the first rate likely to rise.
The Fed will provide a better reading of how much the views of policymakers have changed when it releases new quarterly forecasts on Dec. 15, when the next policy meeting ends.
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