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Fed could raise rates in 2022 if labor market recovers

(Bloomberg) – The Federal Reserve could consider raising its interest rates from near zero by the end of 2022 when the labor market reaches full employment and inflation is on target for the central bank, said the president of the Bank of the United States. Boston Federal Reserve, Eric Rosengren “The criteria is that we have a sustainable inflation rate of 2% or more and that we are in full employment,” Rosengren said in an interview with Yahoo Finance. “I think it is very possible that we will see that by the end of next year, but it will depend on whether the economy progresses with the strength that I hope.”

Rosengren joined several other Fed chairmen – James Bullard of St. Louis, Robert Kaplan of Dallas and Raphael Bostic of Atlanta – in designing a scenario in which the Fed would raise rates next year. However, he declined to specify what his interest rate “point” or forecast was in the quarterly projections.

Rosengren said it was “quite likely” that the Federal Open Market Committee (FOMC) would make the “additional substantial progress” in employment and inflation needed to reduce its bond buying program before the start of the year. next year. The US economy is likely to achieve growth of around 7% this year, which would provide further support for the job market recovery, he said.

The FOMC forecasts that gross domestic product will expand 7% this year, compared to a previous projection of 6.5%.

Inflation stir

The current rise in inflation is largely temporary and reflects the reopening of the economy after the covid-19 pandemic and supply problems will pass, Rosengren said, referring to the situation in the used car market.

“There is a lot of buzz around inflation right now,” the Boston Fed leader said in another speech to the Official Forum of Monetary and Financial Institutions. “This is most likely not a problem that will persist into the next year or the following year.”

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While many FOMC members view price pressures as transitory, their range of inflation estimates increased to between 3% and 3.9% in June from 2.1% to 2.6% in March, they showed last week’s projections.

Financial stability

Rosengren said financial stability issues should be considered when the Fed sets monetary policy because regulatory tools alone cannot always prevent crises.

The recent rise in home prices is concerning because it is so steep and could pose stability problems, he said. He added that the Fed might want to reduce the purchase of mortgage instruments at a rate that would end their purchase faster than Treasuries.

Rosengren has been one of the Fed’s most consistent voices on financial stability risks that could arise from a long period of low interest rates, a concern that was echoed in the central bank’s May financial stability report.

“This is the wrong time in the cycle to have real estate booms that could actually explode,” Rosengren said. “In many of the major markets in the US, home prices in metropolitan areas are already higher than they were in the run-up to the financial crisis.”

Original Note: Fed’s Rosengren Says 2022 Rate Hike in Play as Job Market Heals

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