Higher unemployment rate looms in US as Fed fights inflation: WSJ

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US Federal Reserve officials are beginning to signal that their efforts to tackle scorching inflation by raising interest rates may lead to higher unemployment, said an article published Monday by The Wall Street Journal.

This marks a reversal from last year, when they sought a fast labour-market recovery, said the article.

The article expects that the Fed could consider raising rates by 75 basis points this week as inflation remain elevated and policy makers could project somewhat higher unemployment rates over the next two years than they had anticipated earlier this year, Xinhua news agency reported.

Fed Chairman Jerome Powell and other officials suggested earlier this year that they might be able to reduce demand for labour — a source of inflation pressure — primarily by prodding employers to cut job vacancies, rather than by laying off workers and pushing up unemployment.

But in their recent comments, noted the article, Fed officials have sketched out a path in which unemployment rises this year, though not sharply.

Some economists have been skeptical that the Fed can reduce job vacancies without a notable increase in the unemployment rate, said the article.

It also warned that “we should prepare ourselves for projections intended to communicate the Fed’s resolve to reduce inflation by targeting a higher level of unemployment,” quoting Tim Duy, chief US economist at research firm SGH Macro Advisors.

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