The US could be ready to raise rates by the end of 2022, says Fed vice president

The vice president of the Federal Reserve (Fed), Richard Clarida, announced that the entity could meet its benchmark metrics to increase interest rates next year if the labor market recovers to pre-pandemic thresholds and inflation is at acceptable levels.

He noted that while the Fed continues “far from considering raising interest rates“, If your current outlook for the economy turns out to be correct, then”The conditions necessary to raise the target range for the federal funds rate will have been met by the end of 2022″.

At that point, an interest rate trajectory similar to that established by the officials of the Fed in September it would be “totally consistent“With the new framework to reach its inflation target of 2% and the”maximum employment“, said Clarida at an event at the Brookings Institution.

That “dot plot”Of rates showed the officials of the Fed moving toward a rate hike next year, but evenly divided at the time, with a majority pointing to rates rising more steadily in 2023 and 2024.

Clarida’s comments come at a time when the Fed He directs his attention to a possible clash between his hope that the labor market will improve as much as possible and his concern that inflation is already putting too much pressure on the economy.

To date, inflation already presents “much more than a ‘moderate’ overshoot of our 2% long-term goal, and I would not consider a repeat of this next year to be a policy success“, said Clarida.

The official said he expects a price measurement that excludes volatile food and energy costs to remain above the Fed’s target for now, though the pace should slow.

He added that expected job growth as the economy continues to expand will increase labor force participation and bring the unemployment rate to 3.8% by the end of next year.

Two hikes

Saint Louis Fed Chairman James Bullard said he expects two interest rate hikes in 2022 after concluding his phasing out of bond purchases in the middle of the year, though he said it could be put into place if necessary. end to cut in the first quarter.

“If inflation is more persistent than what we are saying right now, then I think we will have to take action a little earlier to keep inflation under control.”He said in an interview on Fox Business Network.

“We have done a lot to move politics in a more aggressive direction”He added, indicating that the Fed began its reduction earlier and plans to do so faster than was thought six months ago.