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Monetary Economist Taylor Says The Fed May Need To Raise Interest Rates To 6%

by William R Simmons
21 November 2022
Fed May Need To Raise Interest Rates To 6%

Susan Collins, president of the Boston Federal Reserve, stated that there is more work to be done by the central bank to manage inflation; nevertheless, the dangers that the US central bank goes too far have increased after a spate of significant interest-rate rises.

In order to combat the most severe inflation rate seen in the last four decades, Federal Reserve policymakers have increased interest rates by 375 basis points this year. This represents the most aggressive tightening campaign seen since the 1980s. After beginning the year at a level very close to zero, the benchmark rate used by the central bank has now risen to a target range of 3.75% to 4%.

During an interview on Thursday in Providence, Rhode Island with Bloomberg, Collins stated, “I think that as we have raised rates, the risk of overtightening has increased.” Collins made these comments on Thursday.

Monetary Economist Taylor

After four increases of 75 basis points each, policymakers are giving hints that it may be time to utilize smaller rate changes as they attempt to establish how high the costs of borrowing will ultimately need to go.

The head of the Federal Reserve Bank of Boston, who has a vote in monetary policy choices this year, reaffirmed that she now anticipates interest rates to peak at a higher level than she anticipated in September, but she stated that it is too early to say how much higher they will go.

At the conclusion of her daylong visit to Providence, Rhode Island, during which she spoke with several community organizations and business leaders, she stated: “I’m not at a position where I believe it’s helpful to give a particular number.” “I do believe that it is going to be necessary for us to boost the rates even further.”

In September, officials projected that interest rates would reach 4.4% by the end of this year and 4.6% in 2023. This implies a half-point increase in December followed by a final quarter-point advance the following year. The next month will see them bringing their quarterly estimates up to date.

Collins stated that a smaller, more “deliberate” increase in interest rates should not be seen as a sign that the Federal Reserve is backing down from the goal of containing price pressures.

She said, “I still think there is a risk that inflation expectations will get ingrained, and that will make it difficult for us to execute our job.” “I still think there is a risk that inflation expectations will become ingrained.”

The data that was presented on Thursday indicated that consumer prices fell by a larger amount than was anticipated in the month of October. The consumer price index rose 7.7% from a year earlier, compared to 8.2% the previous month.

Collins stated that the relaxation was consistent with what officials had anticipated seeing in the market. She did, however, warn against placing an excessive amount of weight on a single report, saying that the monthly statistics might be “especially noisy when you’re at a moment where there may be a transition.”

She reiterated that the officials should think about rate changes for all increments when they get together for their next policy meeting in the middle of December.

“It can be difficult to bring about a slowdown in the economy. Both it and inflation come with very substantial expenses for individuals,” she said. “At this time, we are observing those,” the speaker said.

Donald Kohn, a former Fed Vice Chair, shared that issue when speaking at the conference.

“I worry about price/wage/price interactions,” he said, adding, “how the labor market plays out is going to be critical to where they raise the interest rate and how quickly they can get it down.” The Fed’s decision to raise interest rates was what he was talking about.

According to Kohn, who is currently a senior fellow at the Brookings Institution, in order to put inflation on a sustainable track to a range of 2% to 3%, it will probably take a slight recession.

In light of the fact that the future is so clouded with uncertainty, he continued, “Perhaps this is wishful thinking.”

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William R Simmons

William R Simmons

William R Simmons is a staff writer at LifeStyle UG specializing in topics related to finance and the business field. He has been a part of vibrant newsrooms and has also worked as a reporter for various reputed news channels. Simmons’ expertise cuts across topics like finance, management, and strategy.

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