Fed to keep options open on rate hike
WASHINGTON: A Federal Reserve official left open the possibility on Monday of pausing or stopping interest rate hikes at the central bank’s next policy meeting in September, saying “there’s nothing off the table."
NEW YORK: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City. -- AFP.
“Thus far we’re on the golden path and we’ve got to walk that line,” Chicago Fed president Austan Goolsbee said in an interview on Yahoo! Finance, referring to the path of lowering inflation without triggering a major recession. But he signaled as well that the Fed will continue to be data dependent in making its next rate decision.
To rein in surging costs of living, the Fed has lifted the benchmark lending rate rapidly since March 2022, and most recently raised rates to the highest level in 22 years. While the full effect of policy will take time to ripple through the economy, inflation has cooled and retail sales is showing signs of easing, even as the labor market remains robust. “We’ve never been able to get inflation down even as much as we’ve gotten it down so far without a recession,” Goolsbee said. “It’s looking like we’re walking the line pretty well,” he added, calling it “fabulous news” to see inflation coming down.
But policymakers will have to “play by ear” when it comes to the restrictiveness of the policy rate, he said, signaling that the Fed will have to closely eye economic data in the coming months. Asked about the impact of regional bank failures earlier this year—including the dramatic collapse of Silicon Valley Bank—Goolsbee noted a stabilization in the sector. The European Central Bank could hike interest rates again or pause at its next meeting and any decision will depend on the latest data, president Christine Lagarde has said. The central bank for the 20 countries that use the euro lifted borrowing costs for the ninth consecutive time Thursday as it fights stubbornly high inflation.
But in comments after the meeting, Lagarde fuelled expectations the ECB may finally pause its historic hiking campaign soon, saying she had an open mind about future decisions. In an interview with French daily Le Figaro published Sunday, she stressed no decision had yet been made about what the ECB will do at its next meeting on September 14. “I hear some people say that the final rate hike will take place in September,” she said. “There could be a further hike of the policy rate or perhaps a pause. A pause, whenever it occurs, in September or later, would not necessarily be definitive. “Inflation must return durably to its target.”
Decisions would be based on the latest economic and financial data, she said. The ECB is due to release its latest forecasts, including for eurozone growth and inflation, at the September meeting. Inflation has been slowing but still came in at 5.5 percent in June—well above the ECB’s two-percent target. But there have been growing concerns about the impact of rate hikes after the eurozone slipped into recession around the turn of the year, with the economy shrinking for two straight quarters. But Lagarde said second-quarter economic growth data for Germany, France and Spain, released Friday, were “quite encouraging”.
The French and Spanish economies both grew more than expected. The German economy—Europe’s biggest—stagnated, despite expectations for a slight rebound. She also shrugged off criticism coming from leaders of some countries, such as Italy, about the rate increases. “As a central banker you need to have a thick skin,” she said. “And it’s essential to keep sight of the objective of lowering inflation and to be as clear as possible about the tools deployed and the intended results.” – AFP.
