The Federal Reserve (the Fed) is currently facing a challenging episode. The Fed’s goal at this point is to bring inflation down to its target without hurting the economy. Yet this is seen as very difficult although not impossible to achieve due to the heightened uncertainty about the flow of price pressures caused by the war in Ukraine and the Covid-19 pandemic.
New York Fed President John Williams on Tuesday noted that “the ongoing pandemic and war in Ukraine brings great complexity and uncertainty”. On that basis he stressed that the Fed will rely on data and will adapt its actions accordingly.
Williams added that the Fed’s goal is to bring inflation back to 2% while maintaining a strong economy however it is difficult.
The Central Bank last week raised its benchmark overnight interest rate by half a percentage point to a target range of between 0.75% and 1%, and has since marked a similar base point increase likely to occur at the next two policy meetings in June and July.
U.S. inflation has soared to a 40 -year high and has shifted to a more aggressive stance in recent months as inflationary pressures, once seen as temporary turned into persistent even after the economic opening.
The war conflict between Russia and Ukraine has led to rising food and energy prices. The situation worsened as more Industrial closures in China caused the supply chain of other goods to stall.
Finally the Fed Williams expects that the Fed’s key inflation measure, the core personal consumption spending price index will fall from 5.2% to 4% by the end of the year before falling to around 2.5% in 2023. The U.S. government report. on Wednesday is expected to show consumer price inflation slowing slightly in April, which would be a sign that inflation has reached a peak.
