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Rate hike of 50 or 75 basis points is “reasonable” next month, according to Fed’s Daly

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Federal Reserve Bank of San Francisco President Mary Daly said Thursday that an interest rate hike of 50 or 75 basis points in September would be one way “reasonable” to put the cost of short-term borrowing where it needs to be to reduce inflation.

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We have to take the interest rate to a neutral level at least, which is around 3%, but probably to a restrictive level: a little above 3 this year and a little more above 3 next year.Daly told CNN International.

Once rates are at that level, he said Dalyrates should be kept in what she considers a strategy of “raise and hold”. This view seems to run counter to prices in the futures markets that reflect an expectation of rate cuts next year.

The worst thing you can have as a business or consumer is that rates go up and then go down quickly (…) that causes a lot of caution and uncertainty“, he claimed.

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I think we don’t want to have this idea that we’re going to have this great humpback rate trajectory where we’re going to go up very quickly this year and then we’re going to cut aggressively next year; that’s not on my mind”, he added.

The decision of the fed whether to raise rates next month will depend on the evolution of data on inflation, employment and other economic parameters, he commented Daly.

He also warned, however, that with the global economic slowdown acting as a headwind for US growth, “we have to keep that in mind as we make sure we don’t overdo the policy.”

The US central bank is committed to bringing inflation down to its 2% target, he said, and needs to raise rates enough to ensure that inflation – running at an annual rate of 8.5% as measured by the consumer prices, widely observed – does not take root in the economy.

We also don’t want to overdo politics and find that we’ve tightened the economy more than necessary. That would be an unforced error.” Indian. “It’s about a balancing act to make sure we’re doing enough and not too much while looking at all the risks out there.”.

Source: Gestion

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