Fed will take tougher measures to curb inflation
2022.11.28 13:48
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Fed will take tougher measures to curb inflation
Budrigannews.com – On Monday, representatives of the Federal Reserve continued to advocate for raising interest rates for a longer period of time in order to bring down inflation, which is currently running at a higher rate than anticipated.
The president of the Federal Reserve Bank of New York, John Williams, stated on Monday that he anticipated that inflation would moderate. However, he identified the most difficult drivers of underlying inflation as a red-hot labor market with “rapid” wage growth.
The chief of the New York Fed predicted that the preferred measure of inflation would decrease from its current level of 5.1% to between 3% and 3.5% next year due to slower global growth and fewer disruptions in supply chains. However, this is higher than the Fed’s September projections that inflation would fall to between 2.6% and 3.5%.
Williams said, “Inflation is far too high, and persistently high inflation undermines the ability of our economy to perform at its full potential,” reiterating the Fed’s message that increasing interest rates would be necessary to slow growth and inflation.
Williams estimated that the unemployment rate would rise to between 4.5 percent and 5.5 percent by the end of the year.Many are concerned that China’s COVID-ravaged economy and global growth will suffer as a result of a Fed-induced slowdown, which could result in a painful recession next year.
As a key component of the yield curve—the 2-year treasury yield over—continues to be deeply inverted, a harbinger of a recession, Treasury yields appear to have been pricing in the increasing likelihood of a recession.
However, some Fed officials are more hawkish and warn that markets are underpricing the risk of more aggressive Fed action. As a result, they have reacted negatively to market signals of a recession. They partly attribute the shift in the yield curve to optimism that the Fed’s tightening will result in disinflation.
On Monday, Federal Reserve Bank of St. Louis President James Bullard stated, “I think in this particular moment, this expected disinflation is partly leading to the yield curve inversion.
“Bullard continued, “You have markets seeing a lot of inflation right now, maybe over the next year or two, but not very much inflation over the next five years or the next ten years.”That could be interpreted as faith in the Fed’s plan that we will be able to bring inflation back down to 2%.
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