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The U.S. Federal Reserve needs to hike interest rates to a so-called “neutral” level as quickly as it can and be prepared to raise rates higher than neutral if inflation fails to moderate, Thomas Barkin, president of the Federal Reserve Bank of Richmond, said in an 12 April speech at a New York University event.
A neutral interest rate is one that enables the economy to hum at full employment and steady productivity while not allowing the rate of inflation to increase.
“The best short-term path for us is to move rapidly to the neutral range and then test whether pandemic-era inflation pressures are easing, and how persistent inflation has become,” Barkin said.
In its March meeting, the Fed’s rate-setting committee foresaw rates rising to 1.9 percent by the end of this year and reaching 2.8 in 2023.
The group sees the current neutral rate to be about 2.4 percent.
Committee members have indicated the policy will tighten faster than expected, based on the Fed’s actions during past inflationary cycles.
Many economists now expect the Fed to raise interest rates by a half-point at next month’s meeting instead of the customary quarter-point.
The Fed also is likely to begin to sell its estimated $8.8 trillion in bond holdings next month, perhaps at a rate as high as $95 billion per month.
An aggressive policy tightening by the Fed does not “necessarily require a hard landing,” Barkin said.
“In fact, it might help avoid one by convincing individuals and firms that the Fed is committed to our target, thereby cementing inflation expectations.”
TREND FORECAST: It is total fiction to declare that a neutral rate of around 2.4 percent will stem inflation which is running at 8.5 percent in the United States.
Again, as it applies to the Banksters that want their money, Argentina, which owes the International Monetary Fund some $45 billion dollars in loans, was told by the IMF that to help stem inflation, the government must raise their interest rate at least one percent above the inflation rate.