The American Federal Reserve chairman Jerome Powell has given a warning about the future of the American economy.
While giving opening comments at the second Thomas Laubach research conference in Washington DC, Powell noted that “inflation expectations in the longer term” increased the real interest rates that interest rates have been adapted for inflation.
The FED chair also says that those rates can be a sign of the coming things.
“Higher real rates can also be a reflection of the possibility that inflation could be more volatile in the future than in the period between the crisis of the years 2010. We can enter a period of more frequent and possibly more persistent, supply shocks for a difficult challenge for the economy and for central banks.
Although our policy percentage is currently well above the lower limit, in recent decades we have reduced the speed by around 500 basic points when the economy is in a recession. Although being stuck to the lower limit is no longer the basic case, it is only wise that the framework continues to tackle that risk. “
Delivery shocks are unforeseen events that quickly change the delivery of a good or raw material.
Evidence suggests that delivery shocks were the most important factor that stimulated inflation between 2021-2023, says Joseph E. Gagnon, an international macro economist at the Peterson Institute for International Economics.
Last week the Federal Open Market Committee (FOMC) announced that it was planning to maintain the target range for the federal funds at 4.25-4.5%, with the argument that this was the most suitable level to achieve both maximum employment and controlled inflation. The FED has kept the interest rates stable since December if it reduced the rate by 0.25%.
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