Fed must keep raising rates into next year to fight inflation: official

WASHINGTON (AFP): The US central bank will have to stick to its policy of raising interest rates into next year to ensure that high inflation comes down to the two percent target, a Federal Reserve official said Friday.

Fed Governor Christopher Waller cautioned that lowering inflation will take time, and he supports another “significant increase” in the benchmark lending rate at the September 20-21 policy meeting.

The strong job market and the fact the world’s largest economy has avoided a recession allow the Fed to continue to move aggressively, he said in a speech prepared for delivery to a conference in Vienna.

“I expect it will take some time before inflation moves back to our 2 percent goal,” he said, and the Fed “will be tightening policy into 2023.”

His comments echoed the hawkish statements from other Fed officials recently, including US central bank chief Jerome Powell, who on Thursday stressed that policymakers must move “strongly” to avoid a repeat of the painful inflation surge the US economy suffered in the 1970s and 1980s.

US inflation has reached a 40-year high this year, and though the economy saw two quarters of negative growth — which is commonly viewed as a sign of recession — low unemployment and strong spending show activity has not slowed significantly.

“The fears of a recession starting in the first half of this year have faded away and the robust US labor market is giving us the flexibility to be aggressive in our fight against inflation,” Waller said.

“Right now there is no tradeoff between the Fed’s employment and inflation objectives,” he said.

The Fed has raised rates four times this year including two massive three-quarter point hikes, with a third expected later this month.

How high policymakers will have to take the benchmark rate will depend on incoming inflation data, Waller said.

But “I believe the policy decision at our next meeting will be straightforward,” he said.

He cautioned that even amid some encouraging signs of moderating price pressures “it is too soon to say whether inflation is moving meaningfully and persistently downward.”

“This is a fight we cannot, and will not, walk away from.”