As is known, the U.S. Federal Reserve System (Fed) announced its long-awaited July decision and, as expected, kept the interest rate unchanged. However, some Fed members opposed the decision to leave it unchanged.
Cleveland Federal Reserve Bank President Beth Hammack was one such member. In an interview with Reuters, Beth Hammack explained why she advocates for raising interest rates.
Hammack stated that inflation is likely to remain high and will not spontaneously fall to the 2 percent target level, which is why at the July meeting he voted in favor of raising interest rates.
Hammack noted that prolonged high inflation and delays in combating it may necessitate a more aggressive interest rate hike in the future, stating: "The longer high inflation persists, the more difficult and costly it becomes to reduce it."
Minneapolis Federal Reserve Bank President Neel Kashkari was one of the members who supported raising the interest rate.
Like Hammack, Neel Kashkari also emphasized the importance of high inflation, pointing to the risk of it becoming entrenched in the long term.
In this context, Kashkari stated that he prefers to gradually tighten monetary policy to manage the risk of persistent inflation.
Instead of concluding that more aggressive measures are needed if inflation remains high, and waiting, Kashkari argued that it would now be more appropriate to take small steps, adding that such a strategy would allow the FOMC to slow down or pause the process without creating unnecessary impact on the real economy.
Kashkari argues that gradually raising interest rates will help reduce the risk of prolonged inflation.
Third, Dallas Federal Reserve Bank President Lorie Logan also supported raising the interest rate at the latest meeting. Logan also points to the risk of high inflation and argues that immediate action to raise interest rates is necessary.
The three mentioned officials also opposed tightening monetary policy at the April meeting.
*This is not investment advice.
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