A top Federal Reserve official has backed more interest rate rises if inflation remains at its current level, noting that immigration and aggressive fiscal stimulus are likely to keep US prices rising more quickly than in other rich economies, the Financial Times said.
Fed governor and voter on rate-setting Federal Open Market Committee Michelle Bowman said that she remained willing to raise borrowing costs again should progress on inflation stall or even reverse.
Bowman added that there remained “upside risks to inflation including that looser financial conditions and the federal governments stimulus, could add momentum to demand, stalling any further progress or even causing inflation to accelerate”.
The rise in immigration could also push up housing costs, with construction yet to catch up with demand, Bowman pointed out.
The newspaper noted these remarks point to the debate within the Fed about whether the bank can begin cutting interest rates this year, or at all before Novembers presidential electio
n.
US inflation rose to more than 7 per cent in 2022, as the economy recovered from the COVID-19 pandemic, prompting the Fed to raise rates from near zero to 5.25-5.5 per cent, their highest level in two decades. Inflation has fallen since then, but remained at 2.7 per cent in April, above the central banks 2 per cent target.
Bowman is among the Federal Committee’s most hawkish members and even she did not think that a rate rise this year was the likeliest scenario. But four of 19 officials who attend the committee also revealed earlier this month that they expect to make no rate cuts this year, according to the Financial Times.
Another seven expect just one quarter-point cut, potentially pushing a decision back to the Feds final meeting of the year in December, while the remaining eight members think two cuts are likely, with several members of the committee saying over the past week there were signs the US economy was weakening and price pressures dissipating.
Investors are still betting that the Fed wi
ll cut by a quarter-point in mid-September, the central banks final meeting before the election.
The newspaper noted that the Feds decision to keep interest rates higher for even longer comes as G7 counterparts such as Canada and Eurozone members Italy, Germany and France have begun cutting borrowing costs.
Another Fed governor, Lisa Cook, said that inflation was likely to fall “more sharply” next year and that “at some point” it would be necessary to cut rates “to maintain a healthy balance in the economy”.
Source: Qatar News Agency