Federal Reserve Official Emphasizes the Necessity of Further Rate Hikes to Tackle Inflation


Addressing a conference in Cleveland, Ohio, on Thursday, Michelle Bowman, a governor of the US Federal Reserve, stated that additional interest rate increases are required to address the historically high levels of inflation. In her prepared remarks, Bowman highlighted the need for policy rate hikes to bring inflation down to the target level over time.

To combat inflation, the Federal Reserve had undertaken a series of ten consecutive benchmark lending rate hikes in just over a year. However, last week, the central bank decided to pause its aggressive monetary tightening campaign. Despite their efforts, inflation has remained persistently above the long-term target of two percent.

Currently, the Fed's benchmark lending rate stands at its highest level since 2007, ranging between 5.0 and 5.25 percent. Bowman, a voting member of the rate-setting committee, supported the decision to maintain interest rates during the previous week, citing mixed economic data.

Acknowledging the impact of the Fed's tighter monetary policy on economic activity and inflation, Bowman noted that inflation had declined significantly but remained unacceptably high. She expressed her expectation for further increases in the federal funds rate to establish an adequately restrictive monetary policy stance, effectively reducing inflation on a sustainable basis.

Although the decision to maintain rates was unanimous, the majority of Federal Open Market Committee (FOMC) members predicted additional rate hikes before the end of the year. Fed Chair Jerome Powell, testifying before Senators on Capitol Hill, confirmed that "a strong majority" of FOMC members believed that two more rate increases would be necessary, assuming the economy performed as anticipated.

Powell emphasized the importance of making informed decisions by allowing time to consider incoming information, cautioning against rushing into rate hikes. He highlighted the committee's commitment to achieving control over inflation while avoiding the risk of excessive tightening.

Futures traders currently estimate a 75 percent probability of another interest rate hike occurring at the Federal Reserve's upcoming meeting on July 25-26, according to data from CME Group.

During Powell's congressional testimony, he also addressed reports suggesting regulators were contemplating a potential 20 percent increase in capital requirements for certain US banks, prompted by recent collapses of mid-sized lenders. Powell clarified that such requirements would primarily affect the eight largest banks, potentially including some capital increases for other institutions. However, he reassured that smaller community banks with assets under 100 billion dollars would likely be exempt from the increased reserve requirements' associated costs.

#buttons=(Ok, Go it!) #days=(20)

Bullion Bite uses cookies to enhance your experience. How We Use Cookies?
Ok, Go it!