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Thursday, July 7, 2022

Fed officials indicate rates could move to ‘restrictive’ levels

WASHINGTON ( Associated Press) – Federal Reserve officials agreed earlier this month that they may have to raise interest rates to a level that weakens the economy as part of its campaign to curb inflation. which is close to a four-decade high.,

At the same time, many policy makers also agreed that after a sharp rise in rates in the coming months, they can “assess the effects” of their rate hikes and the slowdown based on the health of the economy. may increase the rates.

Following their meeting this month, policymakers raised their benchmark short-term rate by half a point – double the normal increase. According to the minutes of the meeting of 3-4 May Issued on Wednesday, most officials agreed that a half-point hike would also be “appropriate” at the next meeting in June and July. Chairman Jerome Powell himself indicated after this month’s meeting that a half-point increase would be “on the table” in the next two meetings.

All officials were of the view that the Fed should “rapidly” raise its key rate to a level at which it neither stimulates nor inhibits growth, which officials have said would be almost The rate is 2.4%. Some policymakers have said they will reach that point by the end of this year.

However, the minutes show that there could be a heated debate among policymakers over how soon to consolidate credit after the June and July meetings. The economy has shown more signs of a slowdown since the Fed meeting, and stock markets have fallen sharply.

For example, government reports have indicated that sales of new and existing homes have declined sharply since this month’s Fed meeting, and there are signs that factory output is picking up more slowly. Gennady Goldberg, senior rate strategist at TD Securities, suggested that the minutes released on Wednesday may reflect a more “hawkish” Fed — that is, a greater focus on raising rates to curb inflation — than it actually is now. could be possible.

Some officials, notably Federal Reserve Bank of Atlanta Chairman Rafael Bostic, have indicated since meeting this month that the Fed may reconsider the pace of rate hikes in September.

And Loretta Meester, president of the Federal Reserve Bank of Cleveland, has said the Fed could slow its rate hikes, a quarter-point pace likely, if there is “compelling evidence of slowing inflation.”

“But if inflation has failed to moderate,” she said, “a faster pace of rate hikes may be necessary.”

Minutes released on Wednesday signaled a tentative acceptance by some Fed officials that recent inflation data “may suggest that overall price pressures may no longer be worsening.” At the same time, those officials – the minutes did not name individual Fed policymakers – stressed that “it is too early to believe that inflation was peaking.”

Fed officials unanimously agreed that “the US economy was very strong, the labor market was extremely tight, and inflation was very high and above” the Fed’s target of 2%. Powell expressed a similar sentiment in his May 4 news conference.

Fed officials are betting that the economy’s sheer strength will enable it to cope with increasingly higher lending rates without extended layoffs or recessions.

When Fed officials decided to raise their benchmark rate this month By half a point to a range of 0.75% to 1%, it was their first increase of that size since 2000. Officials also announced they would begin shrinking their massive $9 trillion balance sheet, which has more than doubled. global pandemic.

Balance sheets rose as the Fed bought nearly $4.5 trillion in Treasury and mortgage bonds, trying to maintain long-term rates after the pandemic slowdown. On June 1, the Fed plans to begin letting those securities mature without changing them. This should also increase the cost of long-term borrowings.

Powell has said the Fed is determined to raise rates enough to rein in inflation, leading many economists to expect this year to be the fastest pace of rate hikes in three decades. Powell says the central bank is targeting a “soft landing,” in which higher interest rates quell lending and spending enough to slow the economy and inflation. But most economists doubt the Fed can achieve such a narrow result without an economic slowdown.

Stock prices have fallen on fears of the Fed raising rates Will send the economy into recession. The S&P 500 has fallen for seven consecutive weeks, its longest stretch since the dot-com bubble in 2001. The stock index has almost fallen into bear-market territory. Last week – defined as a drop of 20% from its peak – but rallied on Wednesday.

The minutes also showed that some policymakers decided it was appropriate to consider selling some of their holdings of mortgage-backed securities, rather than just maturing them. Minutes said the sale would make it easier for the Fed to transition to a portfolio primarily made up of Treasuries.

The Fed has said that by September it will allow up to $30 billion of mortgage-backed securities to mature each month, plus $60 billion in Treasuries. Many analysts doubt the cap for mortgage-backed bonds will be reached, as mortgage rates have risen more than 2 percent since the start of the year. This means fewer homeowners will refinance their mortgages because their current loan rates are now lower than the rates available in the mortgage market.

Less refinancing would force the Fed to sell mortgage-backed securities to maintain its plans to shrink its balance sheet.

World Nation News Desk
World Nation News Deskhttps://worldnationnews.com/
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