A senior US Federal Reserve official said Thursday that additional interest rate hikes are needed to tackle historically high inflation.
“I believe that additional policy rate increases will be necessary to bring inflation down to our target over time,” Fed governor Michelle Bowman told a conference in Cleveland, Ohio, on Thursday morning, according to prepared remarks.
The Fed paused its aggressive campaign of monetary tightening last week after raising its benchmark lending rate 10 times in a row in just over a year to tackle inflation which remains stubbornly above the its long-term target of two percent.
The Fed’s benchmark now sits in a range between 5.0 and 5.25 percent — its highest level since 2007.
Bowman, who is a voting member of the Fed’s rate-setting committee, said she had supported the committee’s decision last week to hold interest rates in the face of mixed economic data.
Bowman said the bank’s tighter monetary policy “has had some effect on economic activity and inflation to date.”
But she added that, while inflation has declined substantially, “it remains far too high.”
“I expect that we will need to increase the federal funds rate further to achieve a sufficiently restrictive stance of monetary policy to meaningfully and durably bring inflation down,” she said.
The decision to hold rates last week was unanimous, but almost all members of the Federal Open Market Committee predicted that the bank will have to raise its benchmark further before the end of the year.
“Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,” Fed chair Jerome Powell told lawmakers on Capitol Hill on Wednesday.
“Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,” he said, adding that “a big majority” believe two additional hikes will be needed this year.
“I think that’s a pretty good guess of what will happen if the economy performs about as expected,” he said.
Futures traders assign around a 75 percent chance the Fed will raise interest rates again at its next meeting on July 25-26, according to data from CME Group. — Agence France-Presse