Joe Biden reinforces support for Fed’s effort to tame inflation


Joe Biden reiterated his support for the Federal Reserve’s efforts to fight inflation, giving the US central bank the green light to continue raising interest rates without political backlash.

The president said Tuesday that tackling inflation was his administration’s “top economic challenge” as polls suggest his party will be punished for soaring prices in this year’s midterm elections.

Biden promised the White House would take steps to cut costs, but also stressed the Fed’s “primary role” in fighting inflation, signaling that the administration is more concerned about high prices than a possible recession triggered by rapid rate hikes.

He said: “There are things we can do and we can address. It starts with the Federal Reserve, which plays a key role in fighting inflation.

The chairman added: “While I will never interfere with the judgments of the Fed and sit here and tell them what to do – they are independent – I believe that inflation is our main economic challenge right now. , and I think they do too.

“I agree with what the President [Jay] Powell said last week that the number one threat [to] the force we build is inflation. The Fed should therefore do its job and it will. I’m convinced.

The remarks underscore growing concern within the Biden administration over inflation, which has continued to rise even as the Fed has begun raising rates.

The Fed raised its benchmark key rate from near-zero levels to a new target range of 0.75% to 1%, after delivering its first half-point rate hike since 2000 last week. The central bank is set to repeat the move at its June and July meetings, with high odds of a similar adjustment in September.

Despite this, prices continue to rise, with a measure of core inflation that excludes volatile items such as food and energy hovering at 5.2%.

As a result, many economists fear the Fed is going too far, raising rates so quickly it could trigger economic contraction and job losses.

“It’s unlikely the Fed will be able to handle this until a soft landing,” said Randal Quarles, a former senior official who left the central bank late last year, during an interview. a recent public appearance. “The effect will likely be a recession.”

That argument, however, was dismissed on Tuesday by New York Fed Chairman John Williams, who predicted the economy would continue to show “strength and resilience” despite much tighter monetary policy.

In a speech on Tuesday, Williams acknowledged that the central bank’s task of “reducing the heat” on a burning economy without undue hardship would be difficult, but said it was “not insurmountable.”

“Our monetary policy tools are particularly powerful in the very sectors where we see the greatest imbalances and signs of overheating, such as durable goods and housing,” he said.

“Higher interest rates will cool demand in these rate-sensitive sectors to levels better aligned with supply. It will also reduce the heat in the labor market, reducing the imbalance between job vacancies and the supply of available labour.

The message from Williams – a close confidant of Powell and a voting member of the Fed’s monetary policy setting committee – came at a tumultuous time for financial markets, which have capsized violently in recent days as investors prepare for the end of the pandemic era stimulus measures that central banks around the world have put in place over the past two years.

Borrowing costs in the United States are also significantly higher, driven by a jump in the yield on 10-year Treasury bills, a benchmark that underpins borrowing costs and equity valuations around the world. It is now trading around 3%, up 1 percentage point since March.

Traders generally expect the fed funds rate to hit 2.7% by the end of the year, a draft level economists will begin to dampen economic activity, especially as the The Fed’s planned reduction of its $9 billion balance sheet will begin next month.

On Tuesday, Williams instead bragged about an ‘advantage’ the central bank has this time around, as he explained why he expects core inflation to fall to nearly 4% this year and 2.5% next year without any significant deterioration in the situation. unemployment rate and economic growth.

Powell predicted a “soft or soft landing” last week, with higher interest rates potentially leading to fewer job creations rather than outright losses. Chris Waller, a Fed Governor, shared that optimism on Tuesday, suggesting that the central bank can raise rates without a large negative shock to the job market.

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