“The time to contain the pace of rate hikes may come after the December meeting”

on Estimated risk per 30.11.2022 13:38:00

From Fed Chairman Powell: Inflation and the labor market. Excerpts:

Today, I will present a progress report from the Federal Open Market Committee (FOMC) on restoring price stability to the US economy for the benefit of the American people. The report must begin by recognizing the reality that inflation remains too high. My colleagues and I are well aware that high inflation creates significant hardship, depletes budgets, and reduces what wages can buy. This is especially painful for those who are least able to pay the higher costs of basic necessities such as food, housing and transportation. The Federal Reserve System is responsible for price stability, and it is the backbone of our economy. Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustainable period of strong labor market conditions that benefit everyone.

Housing services inflation measures the rise in prices of all rents and the rise in the equivalent rent of owner-occupied housing. In contrast to inflation in goods, inflation in housing services has continued to rise and is currently at 7.1 percent over the past 12 months. However, housing inflation tends to lag other prices at inflationary turning points due to the slow pace at which the stock of leases turns over2. a year or so. 12-month inflation rates in new leases rose to nearly 20 percent during the pandemic, but have fallen sharply since about mid-year (Figure 3).

Federal Reserve BoardHowever, as Chart 3 shows, overall housing service inflation continues to rise as existing leases are refurbished and rise in price to catch up with the higher rents of new leases. It will most likely continue next year. But as long as new rent inflation continues to fall, we expect housing services inflation to start declining sometime next year. Indeed, a decline in this inflation underpins most forecasts of declining inflation.

Returning to monetary policy, my FOMC colleagues and I are firmly committed to restoring price stability. After our November meeting, we noted that we expect continued rate hikes to be appropriate to achieve sufficiently restrictive policies to bring inflation down to 2 percent over time.

Monetary policy affects the economy and inflation with an indefinite delay, and the full impact of our rapid tightening has yet to be felt. Thus, it makes sense to hold back on our rate hike as we approach a level of containment sufficient to bring down inflation. The time to curb the pace of rate hikes may come after the December meeting.. Given our progress in tightening policy, the timing of such easing matters far less than how much more we need to raise rates to control inflation and how long we need to keep policy at a restrictive level. It is likely that the restoration of price stability will require a restrictive policy for some time. History strongly warns against premature relaxation of policy. We will stay the course until the job is done.
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