(Washington) The US Federal Reserve (Fed) should keep rates high for some time to ensure that inflation is back towards the 2% target, Michael Barr, the one of the leaders of the institution.
“The most important question now is not whether or not we need to raise rates further, but rather how long we need to keep them at a sufficiently restrictive level to achieve our goal,” Mr. Barr, vice president responsible for banking supervision at a conference in New York.
“I think it will take some time,” he added, considering that the decision will depend “on a certain amount of data to come”.
The Fed has raised rates eleven times in the past 18 months, to a range between 5.25 and 5.50 percent, a two-decade high, in an effort to bring inflation back toward its long-term goal of 2 %.
In decline for more than a year, the latter nevertheless remains above the target, at 3.5% in August according to the PCE index which is favored by the Fed, pushing the majority of central bank officials to anticipate a further increase, if necessary, by the end of the year.
Michael Barr’s comments also add to those of his colleagues, all of whom point out that a prolonged period of high rates may be necessary.
“I now think it is more likely that the American economy can see inflation return to the target level without causing job losses,” Mr. Barr also noted.
Economists estimate that an increase in interest rates leads to a decline in economic activity, by making access to credit more difficult, which ultimately causes an increase in unemployment, a scenario which, however, has not so far not materialized in the United States, going against classical economic theories.
“Historical data warned us that such a possibility was difficult to achieve,” he concluded.
