The full impact of Fed hikes has yet to be seen in the real economy, says former vice chairman Blinder

Sept 1 (Reuters) – The full impact of a U.S. Federal Reserve interest rate hike starting in March 2022 has yet to be fully transmitted to the real economy, a former vice chairman of the central bank said on Friday.

The central bank has raised its target rate by 525 basis points to 5.25%-5.50% in the last 17 months.

„I think there’s a lot more to be seen,” said Alan Blinder, Fed vice chairman between 1994 and 1996. Reuters Global Markets Forum (GMF).

„We’re talking about two- to three-year average lags from monetary policy. So versus that, if it’s three months or four months faster, that’s not a big deal, and there’s a lot more to come,” Blinder added. .

Blinder said core inflation is reacting to monetary policy action at a slower pace than inflation, and combined with exchange rate lags, the central bank should consider pausing rates for some time from here.

Inflation, as measured by the personal consumption expenditures (PCE) price index, was 3.3%, above the central bank’s 2% target, while the „core” rate, which excludes volatile food and energy prices, was 4.2%, the latest data showed. .

Blinder said the central bank’s 'last mile’ drive to reduce inflation could be difficult, with inflation only slightly above its 2% target and the central bank not being „stubborn”.

„If the first digit of core PCE is 2% and the second digit is 2.8%, I think the central bank will start easing on inflation,” he said.

„They may decide that the cost of output and employment is too high to get from 2.8% to 2%,” Blinder said, adding, however, that they would be „no where near” to publicly indicating a change in the inflation target. .

(For live interviews, join GMF, a chat room hosted on Refinitiv Messenger: https://tinyurl.com/yyr3x6pu)

Our Standards: Thomson Reuters Trust Principles.