The central bank will announce its future course on September 21.
(Photo: Reuters)
Washington, Berlin According to Fed Director Chris Waller, the US Federal Reserve can continue its aggressive interest rate course in view of dwindling recession worries. “On the basis of what I know now, I support a significant increase at our next meeting,” Waller said on Friday at the Institute for Advanced Studies (IHS) in Vienna.
The key interest rate must rise to a level that significantly reins in the demand for goods in the economy. The Fed is ready to take decisive action to bring inflation back to the 2% target. “This is a fight we cannot and will not avoid,” he added.
Concerns that a recession had begun in the first half of the year have disappeared. This circumstance and also the strong labor market give the central bank the flexibility to fight inflation aggressively.
The Fed recently raised the key interest rate unusually sharply twice in a row by 0.75 percentage points – to the range of 2.25 to 2.50 percent. She wants to follow up at the meeting on September 21 and make her course dependent on the data.
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She looks in particular at the inflation and labor market figures. The job market continues to boom, even if economic output has recently contracted for two quarters in a row. According to Waller, however, the data indicates an increase in consumption in the third quarter. He also referred to the Atlanta Fed District’s model projection, which predicts a 2.6 percent increase in gross domestic product for the current quarter. But there are also other estimates that are “a tad” lower.
Inflation data in focus
However, the Fed is very concerned about high inflation, which Waller says is “much too high”. Investors are watching Tuesday’s August consumer price data with great interest as it may be crucial in determining the level of the Fed’s next rate hike.
Experts expect the inflation rate to fall to 8.1 percent from 8.5 percent in July. However, this would mean that the central bank’s target of inflation of 2.0 percent would still be a long way off. There is concern among investors that the central bank could stall the economy by over-tightening and trigger a recession.
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