Source: https://www.linkedin.com/feed/update/urn%3Ali%3Ashare%3A7063587487880802304
#Fed May Have to Move #Rates Higher upto 7.5% To Match #Inflation: https://lnkd.in/gsCBGmYH :
Five of nine widely used measures of inflation are actually higher today than they were a year ago, raising questions about the conventional view that inflation is on a clear downward path, said Federal Reserve Bank of St. Louis President #JamesBullard, speaking late Friday at Stanford University.
While the Fed’s favorite #inflation #measure — the #core #rate of the #personal #consumption #expenditure #price #index — is lower, many other popular measures, including those from the Dallas, San Francisco and Atlanta #regional #Fed #banks, show that #inflation is #higher.
If there were really strong #disinflation going on in the U.S. economy, all these #measures would be lower over the past year, Bullard said, in a #speech at a #monetary-#policy #conference sponsored by the The Hoover Institution, Stanford University.
He said he estimates the #Fed’s #benchmark #interest #rate is now barely high enough — in a range of 5% to 5.25% — to put downward pressure on inflation. This level of interest rates is already at work. The evidence is that market-based inflation expectations have returned to levels consistent with the Fed’s 2% target, he said.
#JeffreyLacker, a former president of the Federal Reserve Bank of Richmond, who was on the Hoover Institution panel with Bullard, said he thought the Fed might have to move #rates considerably #higher, especially if #inflation doesn’t come down rapidly or the #unemployment #rate doesn’t rise over the next six months.
The Fed is now #forecasting that #PCE inflation will fall to a 3.3% annual rate by the end of the year from its 4.2% reading in March. The Fed also forecast that the #unemployment #rate will rise to 4.5% from 3.4% in April.
Lacker referred to these #forecasts as “#magical.”
If inflation stays close to where it is now by the end of the year, the standard #TaylorRule for #monetary #policy suggests the Fed will have to #raise #rates to over 6% to get price pressures contained, Lacker said.
And using the same rule, if the #unemployment #rate remains at 3.5%, Lacker said that the Fed’s benchmark rate may have to rise as high as 7.5% to bring inflation down.
The #Taylor #rule was named for #StanfordUniversity #economist #JohnTaylor, who #hosted the #conference.
Lacker said the #Fed should adjust its #communications to take into account #Taylor #rule #analysis. He said the Fed didn’t need to formally adopt the rule but should show the #public how #policy would operate if the rule were followed.
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