Federal Reserve ‘on track’ to avoid recession, official says
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THE Federal Reserve is on track to tackle US inflation without pushing the country into a damaging recession, a senior official on the bank’s rate-setting committee said on Tuesday.
After pushing its key lending rate to a 22-year high to tackle stubborn inflation, the Fed recently slowed down the pace of its hikes, citing a need to be data-dependent.
Consumer inflation has fallen sharply since the campaign began in March 2022, but remains stuck above the Fed’s long-term target of two per cent, maintaining the pressure on policymakers.
“We feel like we’re on track for a soft landing,” Minneapolis Fed President Neel Kashkari told a conference in North Dakota, using a popular term to describe tackling inflation while avoiding a recession.
“Inflation has come down quite a bit, the labor market has remained strong, maybe we can get inflation all the way back down and avoiding (sic) a deep recession,” he said.
Kashkari also engaged with recent comments from Dallas Fed President Lorie Logan, who said elevated long-term interest rates could mean there is “less need” for another rate hike.
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Yields on the 10-year US Treasury recently rose to a 16-year high as traders raised their expectations that interest rates will have to remain higher for longer to bring inflation down.
Higher yields on longer-term notes feed into increased consumer borrowing costs, which can act to constrain economic activity and reduce the rate at which prices increase.
“It’s certainly possible that higher long term yields may do some of the work for us in terms of bringing inflation back down,” Kashkari said on Tuesday.
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But he warned that if yields rose due to a change in expectations about Fed policy, the US central bank “might actually have to follow through on their expectations in order to maintain those yields.”
“So it’s a little bit circuitous, and it’s hard for me to say definitively, ‘hey, because they’ve moved therefore we don’t have to move,’” he added. AFP
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