(Original title: The Fed’s “Three Hands”: Still need to raise interest rates further to curb inflation and unemployment will rise significantly)
November 29 news from the Financial Associated Press (edited by Xia Junxiong)On Monday (November 28), New York Fed President Williams said the Fed still has more work to do to reduce inflation, a policy path that is expected to lead to a significant rise in unemployment.
Williams also serves as the vice chairman of the Federal Open Market Committee (FOMC), enjoys fixed voting rights on monetary policy decisions, and is regarded as the “number three” of the Federal Reserve.
The Federal Reserve has raised interest rates six times this year, including four consecutive hikes of 75 basis points (June, July, September and November), with a total of 375 basis points of interest rate hikes, raising the target range of the federal interest rate to 3.75% -4%, the central bank’s most aggressive rate hike cycle since the 1980s.
Williams said: “Inflation is too high, and persistent high inflation has undermined our economy’s ability to reach its full potential.” He pointed out that the Fed has shown signs of progress in reducing inflation, but more action must be taken to bring inflation back to the 2% target level.
October CPI data showed that U.S. inflation may be slowing. The U.S. CPI rose by 7.7% year-on-year in October, which was significantly lower than expected. After seven months, it fell back below 8%, but it was still far above the Fed’s 2% target.
“Further tightening of monetary policy should help restore balance between supply and demand and bring inflation back to 2% over the next few years. Tighter monetary policy has already begun to cool demand and reduce inflationary pressures, which will take some time,” Williams said. But I have every confidence that we will return to a sustained period of price stability.”
The Fed’s next interest rate meeting is scheduled for December 13-14 local time, and the market generally expects the Fed to raise interest rates by 50 basis points in December.
This was also corroborated by the minutes of the Fed’s November meeting released last week, which showed that most Fed officials believed they should slow down the pace of rate hikes after raising rates four times in a row by 75 basis points.
Williams says unemployment will rise significantly
Williams warned on Monday that while the U.S. economy is unlikely to fall into recession with rate hikes, unemployment will still rise. He said the job market remains very tight, with a large labor gap and rapid wage growth.
The October non-agricultural data significantly exceeded market expectations, with a total increase of 261,000 jobs and an unemployment rate of 3.7%.
With moderately positive economic growth this year and next, Williams forecasts that the unemployment rate will rise to between 4.5% and 5.0% by the end of next year. Meanwhile, slower global growth and improving supply chains are helping to bring down inflation.
The U.S. PCE, the Fed’s favored inflation gauge, rose 6.2% year-on-year in September, and Williams expects inflation to fall back to between 5.0% and 5.5% by the end of 2022 and between 3.0% and 3.5% next year. .
US PCE data for October will be released on Thursday, while non-farm payrolls and the unemployment rate for October will be released on Friday.