“At this point, inflation is not the only risk we face,” warned the president of the San Francisco Fed during a speech at the Commonwealth Club World Affairs of California.
An official of the American central bank (Fed) warned on Monday of the risk of seeing unemployment rise in the United States, because of rates which remain high to bring down inflation which is still too high.
“At this point, inflation is not the only risk we face,” warned San Francisco Fed President Mary Daly during a speech at the Commonwealth Club World Affairs of California.
“So far, the labor market has adjusted slowly and the unemployment rate has increased only slightly. But we are getting closer to a point where this favorable outcome could become less likely,” she warned.
The Fed, since July 2023, has maintained its rates in the range of 5.25 to 5.50%, at the highest since 2001, in order to curb inflation. This has the effect of slowing down economic activity, and therefore employment.
The unemployment rate rose slightly in May, to 4%, the highest since January 2022. But there was much more job creation than expected.
“At this stage, we have a good job market, but not an effervescent market”, and a possible “slowdown in the job market could result in an increase in unemployment”, further indicated Mary Daly, who in 2024 will have the rotating voting rights within the Fed’s decision-making committee, the FOMC.
She insisted on the need to “keep an eye on both aspects of our mandate – inflation and full employment”.
Because inflation remains above the 2% target.
“The irregularity of inflation data since the start of the year has not inspired confidence. (…) It is difficult to know if we are really on the path to lasting price stability,” commented the official.
After a rebound this winter, inflation started to fall again in April and May, to 3.3% over one year in May compared to 3.4% in April, according to the CPI index, on which pensions are indexed.
The PCE index, a measure favored by the Fed, remained stable in April at 2.7% over one year. May figures will be released on Friday.
