It is important, Daly said at a symposium held jointly with the Monetary Authority of Singapore, “to navigate through this high inflation environment as carefully as we can, so that we don’t leave longer term damage to our labor market.”
The Fed has been aggressively raising interest rates to bring down inflation that is more than three times its 2% target. Last week’s rate rise of 75 basis points was the central bank’s third straight increase of that size, and it signaled it would likely lift the policy rate — now in the 3%-3.25% range – to 4.4% by year-end and to 4.6% next year.
Fed Chair Jerome Powell has said he expects that raising rates at that pace will push up unemployment and be painful for some households and businesses, but that ultimately it would be more painful to allow inflation to get entrenched.
“Price stability is fundamental,” Daly said on Tuesday. U.S. inflation is about half due to excess demand, and about half due to constrained supply, she said, and the hope is that as the Fed raises rates to slow demand, the supply side will also heal, allowing the two to “meet in the middle.”
But supply chains are still tangled and labor supply has not returned as quickly as had been hoped, she said, so the Fed may end up needing to do “a little more” on demand to make sure inflation does come down.
Source: Economy - investing.com
