The chairman of the St. Louis branch of the Fed, James Bollard, thinks that interest rates in the United States should be raised 12 times more this year, and beyond 3%, in order to establish the masses of the public in terms of the determination to fight (which will also be effective) inflation.
Inflation in the United States for February reached 7.9%. On Tuesday, it was decided to raise the interest rate by 0.25 points to a range of 0.25-0.5%. Governor Jerome Powell surprised the market as to the intention to continue fighting inflation, saying that in 2024 the interest rate will stand at 2.8%. The market assumes six more interest rate hikes this year at 0.25 each time, so it will end when the interest rate is at 1.75%.
“The policy of raising interest rates should be updated to be more appropriate to the current circumstances,” Bollard said. The latter was the only member of the Fed’s open market committee to oppose the latest raise, the first since the end of 2018, as carried out – at a level of 0.25 more, and not at 0.5, as Bollard himself hoped it would rise.
He added that the Fed should have already begun the process of reducing its balance sheet, which stands at $ 9 billion. Powell for his part said the move would only start at the next committee meeting likely. Also in a statement on his behalf today, Powell said that inflation is actually hurting the people the Fed is trying to help as much as possible, especially those at the bottom of the economic ladder.
“This burden of inflation is particularly heavy for people with modest incomes and assets, and for those who have limited ability to make adjustments in the face of rising prices,” he was quoted as saying. “The combination of strong real-economy performance and unexpected high inflation means that the Fed’s current policy is far from sufficient to deal with the macroeconomic situation in the United States.”
Ten members of the committee want the interest rate at the end of the year to be 1.75-2%, and there are eight in front of them who thought it should be higher. The end target was provided by Bollard, who thinks the interest rate should be 3-3.25% by the end of the year. He claimed to have supported with the example from the mid-1990s, when the Fed raised interest rates aggressively in the face of inflation.
“The results at the time were excellent. The policy managed to bring in an average inflation rate of 2% and the US economy flourished during the second half of the decade. I think the commission should try and achieve similar results in the current environment,” Bollard explained.
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