Fed policymakers back big rate hikes, say jobless rate could rise

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Cleveland Fed President Loretta Mester participates in a panel convened to discuss the health of the U.S. economy in New York November 18, 2015. REUTERS/Lucas Jackson

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May 10 (Reuters) – The Federal Reserve should continue to raise interest rates in increments half a percentage point larger than usual to control inflation, U.S. central bankers said on Tuesday, even though they acknowledged that this could lead to higher unemployment.

The remarks show that Fed policymakers are, for now, more determined to rein in price pressures than to make sure every American who wants a job can get one — or at least they can’t. not achieve the latter without doing the former.

“I think 50 (basis point increases) in the next two meetings makes perfect sense,” Cleveland Fed Chair Loretta Mester told Yahoo Finance. “It may very well be that the unemployment rate has to go up a bit, we could have another quarter of negative or slow growth, but that will have to happen if we want to bring inflation down.”

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Mester, however, added that she doesn’t believe there is a trade-off between the Fed’s two goals of 2% inflation and full employment “because I really fundamentally believe that if we don’t go back to price stability, we are not going to have sustainably healthy labor markets in the future.”

New York Fed Chairman John Williams, speaking earlier on Tuesday, agreed that the price of reducing inflation could be a slight increase in the unemployment rate, currently at 3.6% and indicative of a labor market which, in many respects, is the strongest in 50 years. .

“When I think of a ‘soft landing’ it’s really a matter of, yes, we could see below trend growth for a while and we could definitely see unemployment go up somewhat but not hugely. “Williams said at an economics conference. organized by the German Central Bank in Eltville am Rhein, Germany. “I think that’s the challenge.”

Fed policymakers are battling a surge in price pressures that has pushed inflation to a 40-year high, as demand for labor and products in the U.S. economy outpaces limited supply , compounded by COVID-19 lockdowns in China and Russia’s war in Ukraine.

A report on Wednesday is expected to show consumer prices continued to rise at an annual rate of more than 8% in April.

Last week, the Fed raised its key overnight lending rate by half a percentage point to a target range of between 0.75% and 1%, marking the biggest rate hike in 22 years. . Read more

Fed Chairman Jerome Powell has signaled that similar increases in borrowing costs are likely at the next two policy meetings in June and July, as the central bank aims to cut its key rate “rapidly” to a low. neutral by about 2.5% and, if necessary, beyond this level.

Remarks from Fed policymakers since then show that Powell’s approach enjoys broad support.

“Once we are in the neutral rate range, then we can determine whether inflation remains at a level that forces us to rein in the economy or not,” Richmond Fed Chairman Thomas Barkin said. at a local Northeast Chamber of Commerce. , Maryland.

“We will do what we have to do.”

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Additional reporting by Francesco Canepa; Editing by Paul Simao

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