Senior Fed officials say that raising U.S. interest rates will not lead to a recession
A senior Fed official stated that the Fed is “very focused” on curbing “excessive” inflation and can do so without causing a recession.
New York Fed Chairman John Williams supports the Central Bank’s Decide The asset purchase plan will be accelerated this week so that the stimulus measures will come to an end in March.
He called it the “completely correct approach” and said it gives the Fed the flexibility to tighten monetary policy even more substantially next year.
In an interview with CNBC, Williams said: “This is actually to put our monetary policy stance in a favorable position, and obviously we can really start to increase the target range of federal funds sometime next year.”
According to the new forecast issued by the Federal Reserve this week, officials expect to raise interest rates three times in 2022 and three more times in 2023. Two-level adjustments will also be made in 2024, bringing the main policy interest rate close to 2%.
These forecasts indicate that the pace of interest rate hikes next year will be much faster than what Fed officials expected when they last issued their forecasts three months ago.
They were released after strong economic data and clearer signs that inflation is becoming a more persistent problem and spread beyond the industries most sensitive to pandemic-related disruptions.
“We are very concerned about inflation; it is clearly too high now,” Williams said on Friday. “We want to ensure that inflation falls back to our long-term goal of 2%.”
Current market pricing suggestion By taking an early aggressive stance to offset rising price pressures, as economic growth slows, the Fed’s ability to raise interest rates subsequently will be limited.
The implicit interest rate of Sofr and Eurodollar contracts between 2024 and 2026 is currently hovering below 1.5%, which is well below the long-term target of 2.5% expected by most Fed officials.
Williams provided some assurances on Friday, saying he was “confident” that the Fed could achieve “stable low inflation” without causing a sharp contraction in economic growth.
He said that in fact, higher interest rates should be regarded as an indicator of the strength of the economy.
“I feel like entering next year [like] The baseline outlook is very good,” he said. “So in terms of our position in the economic cycle, actual interest rate hikes will be a sign of positive development. ”
Williams predicts that the labor market will continue to “strongly improve,” and the labor market will begin to regain momentum. The unemployment rate is now 4.2%.
Fed officials expect the inflation rate to fall to 3.5% next year, the inflation rate will still be as high as 2.7%, and the economy will grow by 4%.