Federal Reserve Chairman Jerome Powell has warned in recent weeks that raising interest rates to fight inflation would be “painful”. We believe that the latest quarterly economic forecasts to be released after the Federal Open Market Committee (FOMC) meetings on the 20th and 21st will show that there is pain with concrete numbers, such as a significant upward revision to the unemployment rate forecast in the future is done.
The Fed is expected to raise interest rates by 0.75 points for the third straight meeting this time. That would raise the federal funds rate target to levels not seen since before the financial crisis of 2008. The next phase of tightening is even more dangerous and will likely be reflected in the latest economic forecasts.
Fed Projections for Unemployment Rate Set to Rise Again
Officials see higher unemployment as a necessary cost of fighting inflation
Sources: Board of Governors of the Federal Reserve, Bloomberg.
Inflation has barely slowed since the last forecast in June, and officials are more willing to tighten. They have also become more skeptical of past estimates of the relationship between unemployment and inflation, which is also perhaps why officials are leaning towards a further slowdown in economic activity.
“A higher interest rate trajectory would certainly have a greater impact on the unemployment rate, with new quarterly forecasts pushing the unemployment rate closer to 4.5%,” said Brett Ryan, senior US economist at Deutsche Bank Securities . revised up to . “Officials will continue to call for a soft landing scenario, but that would mean a high risk of recession,” he said.
June’s median economic forecast expected the unemployment rate to worsen to 4.1% by the end of 2024. Meanwhile, the monthly consumer price index (CPI) figures released since then have been disappointing, with August’s CPI up 8.3% from the same month in 2017, released on the 13th of this month, continuing its strong growth.
Fed Chairman Powell and other officials are increasing warnings about rate hikes. In a speech at the Aug. 26 Jackson Hole meeting (an annual symposium hosted by the Kansas City Fed), the chairman said it would “cause some pain to households and businesses,” calling it “an unfortunate cost of keeping inflation under management.” There is a reason why I explained.
The unemployment rate was 3.7% in August, with 6 million people unemployed and actively looking for work. Assuming no change in the workforce, a decline in the unemployment rate to 4.5% equates to around 1.3 million new jobs being lost.
Fed Again to Raise Estimates of Long-Term Unemployment Rate
Higher estimates would indicate an increasing influence of job postings in policy debate
Sources: US Department of Labor, Board of Governors of the Federal Reserve, Bloomberg.
news-rsf-original-reference paywall">Original title:
news-rsf-original-reference paywall">Supplied to Reveal ‘Pain’ Coming to Next Stage Inflation Fight (抜粋）
