The US central bank, the Federal Reserve (Fed), is raising the benchmark interest rate sharply, but in theory, to catch the recent surge in inflation, faster tightening is needed. analysis came out. The Fed’s Federal Open Market Committee (FOMC), which is scheduled to be held next month, is also expected to raise interest rates by 0.75 percentage points after this month, with some even suggesting that the rate be raised by 1.0 percentage points.
According to the Wall Street Journal (WSJ) on the 18th (local time), the Fed estimated in a report published the previous day that the key interest rate should be raised to 4-7% within this year to quell inflation when the current economic situation is reflected in various mathematical formulas. . The current benchmark interest rate in the US is 1.5-1.75%. In order to raise the interest rate to at least 4% by the end of the year, it is concluded that three or four more ‘giant steps’ to raise interest rates by 0.75 percentage points at once are necessary. Currently, FOMC members expect the US benchmark interest rate to average 3.375% by the end of this year.
“There is no law that the Fed should set rates according to this mathematical formula, but the results of this analysis do show that the Fed could be under pressure to raise rates more aggressively to combat inflation,” the WSJ said.
The probability that the Fed will take the ‘giant step’ next month is increasing. Fed Director Christopher Waller said at an event on the 18th that the Fed should raise its key interest rate by 0.75 percentage points at the FOMC in July. That’s because inflation won’t subside long enough for the Fed to slow its tightening.
“Fed chairman Jerome Powell is likely to choose between a 0.50 percentage point and a 0.75 percentage point increase next month, but some economists are not ruling out the possibility of a 1.0 percentage point increase,” the Financial Times reported. Minneapolis Federal Reserve Governor Neil Cashewcurry said he supported a 0.75 percentage point increase next month.