Sunday, February 5, 2023

Fed official says rates are taking effect

WASHINGTON ( Associated Press) – There is mounting evidence that inflation is easing, indicating that the Federal Reserve’s sharp interest rate hikes are having an effect, said Loretta Meister, a senior U.S. central bank official. But more rate hikes are needed, he said, to definitively defeat the highest inflation the United States has seen in four decades.

“We’re starting to see the kind of action that we need to see,” Meester, president of the Cleveland Federal Reserve Bank, said in an interview with The Associated Press. “We are seeing signs that things are moving in the right direction … These are important factors in thinking about what policies we should take.”

Other Fed officials have also been encouraged by recent soft data on inflation and wage growth. But Meester’s comments are notable because he is one of the most supportive of higher interest rates to combat inflation on the Federal Reserve’s decision-making committee.

“She has been ahead on many of the arguments that have prompted the Fed to act more aggressively over the past year,” said Matthew Luzetti, an economist at Deutsche Bank.

Therefore, Meister’s views serve as a harbinger of what steps the US central bank is willing to take to reduce inflation. According to official data, consumer price growth decelerated from 9.1% in June to 6.5% in December.

However, since the bank’s inflation target is very low (2%), its managers predict more rate hikes. The increases already implemented by the institution have nearly doubled mortgage rates and markedly increased the cost of loans to buy cars and for businesses and consumers. They have also raised the risk of recession.

By how much and for when the bank will increase its benchmark rate, it will probably determine the success of the fight against inflation and its impact on the economy. The bank’s benchmark rate currently ranges between 4.25% and 4.5%, its highest level in 15 years.

Nation World News Desk
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