The US central bank (Fed) is likely to implement several rate hikes this year. This is necessary to curb inflation without causing higher unemployment.
John Williams, chairman of the Fed’s New York branch, said Tuesday at a conference of the German Bundesbank and the National Association for Business Economics (NABE).
“The challenge for monetary policy today is clear: reduce inflation while maintaining a strong economy,” Williams said. The Federal Reserve thus faces a task that is “difficult, but not insurmountable”, it sounds.
Williams expects the Fed’s monetary policy committee to “act quickly to bring rates back to more normal levels this year,” towards 2.0 to 2.5 percent.
Currently, interest rates are between 0.75 and 1 percent. The Fed had already raised key interest rates by a quarter of a percentage point in mid-March before adding another half a percentage point on May 4. It was the largest increase since 2000.
The monetary committee previously announced that new increases of half a percentage point are on the table during the next two meetings (June 14-15 and July 26-27).
On Tuesday, the chief executive of the New York branch of the Fed outlined a scenario where higher interest rates will help push inflation back from its current level of 6.6 percent to “near 4 percent” by the end of the year. Inflation would then fall further to “about 2.5 percent” in 2023, before returning to the 2 percent target a year later.