New interest rate hike by the US Federal Reserve in July?

One of the US Federal Reserve’s (Fed) governors said on Saturday he was in favor of another interest rate hike of three quarters of a point at the next meeting in late July if the data develops as he suspects.

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The Fed on Wednesday made its biggest rate hike since 1994, raising it by three-quarters of a percentage point amid high inflation.

“If the next few data are what I expect, I will support a similarly large move at our July meeting,” Fed Governor Christopher Waller said July 26-27 during a speech in Dallas, Texas, before the Society for Computational Economics .

The institution’s president, Jerome Powell, had warned that another increase of this magnitude could be expected in July.

The institution abruptly cut its interest rates in a range of 0% to 0.25% in March 2020 to support the economy amid the threat of the COVID-19 pandemic.

It started in March 2022, first raising it by a quarter point, then by half a point in early May, and finally by another three-quarters of a point on Wednesday.

But before starting this move, it wanted to halt its asset purchases – government bonds and mortgage-backed bonds – that had allowed the market to be flooded with liquidity during the crisis.

Because the institution aims to communicate its intentions widely in advance to avoid panicking the markets.

“Concerns about the functioning of financial markets (…) generally limit the rate of reduction” in purchases, Waller acknowledged, which prevented the Fed from starting to raise interest rates sooner to stem the rise in inflation.

He also regretted that the criteria set by the Fed for the start of monetary tightening, namely full employment and inflation on the way to a moderate and sustained breach of 2%, also did not allow for this flexibility.

“A less restrictive reduction criterion would have allowed greater flexibility to reduce ‘earlier and more gradually’, as opposed to the relatively ‘later and faster’ approach that (eventually) materialized,” he detailed.

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