(New York) Kansas City Federal Reserve (Fed) Chair Esther George warned on Monday that “too rapid” rate hikes by the Fed could destabilize the U.S. economy, already in the throes of a slowdown.
Posted at 12:44 p.m.
“Raising interest rates too quickly increases the likelihood of steering too sharply” to straighten the path of inflation, said the one who has been at the head of the Kansas City branch for ten years.
The American central bank (Fed) remains on three successive increases in its key rate and, each time, accelerated the pace with respectively a quarter (March), then a half point (May), then 0.75 percentage point in June.
Traders currently estimate a 93% chance of a further 0.75 point hike at the July 26-27 meeting.
As for the following session, on September 20 and 21, the central scenario is that of a rise of half a point, which would bring the key rate to a range of 2.75% to 3%, for the first time since 2008.
“Policy changes affect the economy with a delayed effect,” argued Esther George, in a speech delivered in Lake Ozark, Missouri. “And significant, abrupt changes can destabilize households and small businesses as they make the necessary adjustments. »
At the June meeting, Esther George was the only member of the Monetary Policy Committee (FOMC) to vote for an increase of half a point, and not 0.75 point.
For the central banker, the continuation at an accelerated pace “could create tensions, whether in the real economy or in the financial markets, which would undermine the ability of the Fed to follow the announced trajectory”, that is to say that of a sufficient increase, in the long term, to bring inflation back to around 2% per year.
Mme George recalled that economists and investors were now talking about the risk of a recession and that some operators were even counting on a reduction in the key rate of the Fed next year, to deal with it.
For her, these projections show “the risk of a tightening faster than what the economy and the markets can bear”.
Last week, one of the Fed’s governors, Christopher Waller, said he favored a 0.75 percentage point hike in July, as did the chairman of the St. Louis branch, James Bullard. .