The US could raise benchmark rates by the end of 2022, according to Fed vice chairman

The Vice Chairman of the Federal Reserve (Fed) from the United States, Richard Clarida, stated that the economy of such a nation could be poised for an increase in benchmark interest rate by the end of next year.

In this way, the most important Central Bank official in the world ruled out an increase in the short term.

“If inflation subsides and unemployment falls as anticipated, the necessary conditions to increase the guideline rate will have been met by the end of 2022,” he said. Clarida at a virtual event organized by the Brookings Institution in Washington.

“I believe that these three conditions necessary to raise the target range of the federal funds rate will have been met by the end of 2022,” he said, referring to the tests of inflation and from working market established by the Fed for take off.

For Clarida, the imbalances between supply and demand should “dissipate over time, and the labor market and supply chains adjust” without “persistent pressures” on prices and wages. Thus, he predicted a inflation at 12 months of 2.3% at the end of 2022.

For their part, the officials of the Fed they have refused to define the period of time during which they consider that an average should be achieved.

Employment and inflation without measure to slow it down

The maximum employment target was also redefined as a “broad and inclusive target,” and officials said they would no longer prejudge the maximum employment level when setting policy, although they still produce a forecast of an unemployment rate consistent with stable prices.

Regarding unemployment, he expects a rate of 3.8% for the same date, something “consistent” with the creation of jobs accumulated this year and expected for the next, which would allow to recover the 4.2 million jobs that have not yet been filled in relation to the moment the pandemic broke out.

The unemployment rate fell 0.2 percentage points in October compared to September to settle at 4.6%, far from 3.5% in February 2020, the Labor Department announced on Friday.

Meanwhile, the consumer price index September was 4.4% in 12 months, the highest since 1991, but remained stable compared to the previous month, according to the PCE index that follows the Fed.

However, this is still the subject of discussion about a rate hike, despite high inflation rates. Given this, the Fed’s main officials fear that such a decision will harm the strength of the economic recovery, and in particular employment.

On the other hand, the agency did announce that it would begin to reduce its asset purchases already in November with which it injects money into the economy since the beginning of the crisis.

Currently buying for 120,000 million dollars a month. The pace of the cut will depend on the economic situation, and these purchases could cease completely in mid-2022.

With information from AFP and Bloomberg.