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Author: Ann Saphir
(Reuters) – President of the Federal Reserve Bank of San Francisco, Mary Daly, said on Thursday that high inflation rates are not declining and that the labor market is deteriorating by almost all measures, meaning that a rise in interest rates in March makes sense.
“I don’t want to get involved on the ground and say definitely March,” Daly told Reuters in an interview. But, “when you get rid of the 3.9% unemployment rate in March, and the inflation rate north of the average inflation target of 2% of our price stability target, I think it’s pretty reasonable.”
Consumer prices, which rose 7% in December from a year earlier, are rising in a wider range of goods and services related to the pandemic that saw price rises.
Meanwhile, unemployment fell to 3.9%, not far from before the pandemic.
“The removal and removal of some of the emergency accommodation we have provided to the economy is really a good thing,” he said, and will help keep the recovery going longer so that more staff can return to work.
Last week, Fed officials said they could see a rise in interest rates at a March 15-16 meeting. It’s an opportunity that was seen as far back as November, when Daly was demanding patience in politics to give more employees time to get jobs.
Since then, a lot has changed, he said on Thursday, believing the policy needs to be adjusted this year.
“Then I hoped that more responses to the job offer would come in, but it didn’t, and then we had Omicron, which told me it probably wouldn’t come,” said Daly, who was a sidelined child care or health care worker. earlier concerns about the pandemic remain the same.
In addition, he said, supply chain disruptions have not gone away, and he is hearing signs of rising inflation expectations, from company relationships claiming that workers are demanding higher wages to cover higher inflation.
“Now I see that we will have to make some policy rate adjustments this year,” he said, although unlike some of his colleagues, he declined to predict how many increases will be needed this year. he doesn’t think there will be more than three.
IT’S NOT ENOUGH TO BRAKE
The Fed has kept its policy rate at almost zero since the March 2020 pandemic, and has also bought billions of dollars in Treasury and housing-backed bonds, initially to stabilize financial markets and then to further boost the economy. came out of the initial crisis.
As inflation and employment continued to rise last fall, the Fed decided to gradually reduce asset purchases, easing some of the stimuli it was providing. In December, with inflation still high, they decided to speed up the process and end all purchases of bonds by March.
He also said that with the rate hike, “we are not starting to shrink and shrink the economy,” and stressed that rates will be well below the “neutral” level of 2.5%, where they are unlikely to recover or lose the economy. Inflation, he said, will continue for much of the year, although it should be moderated as supply chains are unblocked and the recent rise in COVID-19 slows.
After the Fed raised rates once or twice, he said it should start lowering its balance sheet by more than $ 8 trillion at a “predictable” rate that won’t change from meeting to meeting, but that’s faster than the Fed cut its last. balance.
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