A disagreement among Federal Reserve officials over how bad the inflation situation is

Divided over when to stop raising interest rates in America

Powell expressed concern about the risks of not doing enough to fight inflation.

From the source

Over the past nine months, US Federal Reserve Chairman Jerome Powell has raised interest rates at the fastest pace since the 1980s, sending markets crashing, the real estate sector to a halt, and raising fears of an imminent recession.

Fed officials were in agreement that interest rates needed to rise aggressively when inflation hit a 40-year high.

But now divisions are emerging over how complex the inflation situation is and what they should do about it.

Inflation is expected to subside steadily next year, as some want to stop raising interest rates soon.

Others worry that inflation has not fallen enough, a scenario that calls for raising interest rates or keeping them at this level, higher for longer, boosting the chance of a sharp deflation.

This leaves Powell with a challenge about drawing the next stage of interest rate policy.

Powell has previously expressed concern about the risks of not doing enough to fight inflation.

In the first phase of its fight against inflation, the Fed has rapidly raised interest rates from zero and raised rates by 0.75 percentage point in each of the past four meetings, and these last three moves have been unanimously endorsed by the rate-setting committee.

Now, in phase two, Fed officials expect to increase interest rates, as Powell indicated, raising the benchmark federal funds rate by 0.5 points.

This raises the rate to a range between 4.25% and 4.5%, the highest level in 15 years.

In the third phase, which most Fed officials expect to arrive by spring or summer, the Fed will hold the rate at a higher level, yet to be determined, until inflation reaches its 2% target.

It seems that the split in the Federal Reserve, has been determined in two camps: (doves), and they believe that high inflation will slow steadily and want to reduce its losses.

and (hawks), who adopt stricter measures against inflation.

Doves argue that high inflation is the result of unexpected disruptions such as the pandemic and Russia's war with Ukraine, and that once it recedes, rapid interest rate increases will dampen demand, lowering prices.

They also expect to see this quiet inflation in housing, cars and other long-term commodities.

As for the hawks, they worry that the Fed may raise interest rates higher than needed and cause a deep economic downturn.

At the Fed meeting last month, some warned against continuing to raise interest rates with big moves, according to meeting minutes seen by The Wall Street Journal.

Among their concerns is that the Fed has moved too quickly this year to have time to study the effects on the economy.

And while hawks worry that the Fed will start cutting interest rates too soon, once the unemployment rate rises, a number of Fed officials, including Powell, point out that it will be worse if inflation returns to the upside, some Economists believe that the Fed has already tightened too much.

Other economists argue that there are risks to continued inflation, unless the economy goes into recession because the United States faces a labor shortage, and because wage inflation tends to be difficult to reduce without deflation.

The Federal Reserve raised interest rates at the fastest pace since the 1980s, crashing markets, stalling the real estate sector and raising fears of an imminent recession. 

Follow our latest local and sports news and the latest political and economic developments via Google news