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On the verge of the next rate increase, Fed’s Powell advised protecting jobs

Sherrod Brown, chair of the U.S. Senate Banking Committee, asked Federal Reserve chairman Jerome Powell on Tuesday to exercise caution when tightening monetary policy sufficiently that it causes millions of Americans already experiencing rising inflation to lose their jobs.
In the letter, which was also submitted to the Federal Reserve’s Board of Governors and made publicly available by Brown’s office, he argued that while fighting inflation is important, it is also important to remember that one’s duty is to ensure that everyone has access to full employment.
Everyone must avoid getting recent gains and a robust labour market overshadowed by the effects of aggressive monetary policy, especially when the Fed’s initiatives fail to address inflation’s primary causes.

At their meeting the following week, Fed policymakers are anticipated to announce their fourth consecutive supersized interest rate hike, pushing the policy rate to between 3.75% and 4% as part of the most significant series of rate hikes in around 40 years.
Brown’s letter urged “continued caution” in light of the synchronised tightening of monetary policy by central banks around the world and other factors that pose the realistic prospect of exacerbating the global economic situation, but it did not specifically ask Powell or the Fed to slow or stop rate hikes.
For his part, Powell has acknowledged these dangers as well as the possibility that increasing borrowing prices would result in a rise in unemployment, which is currently at a historic low of 3.5%.
He has, however, also maintained that the only way to guarantee the durability of the labour market is to defeat inflation, which is currently running at much more than 3 times the Fed’s 2% target.
Brown’s letters to Powell are being published as his fellow Democrats fight to hold onto their slim Senate majority across the nation, with Brown’s home state of Ohio serving as one of the most carefully watched contests. One week following the Fed meeting, the elections are held.
Republicans claim they would manage the economy better than Democrats and blame Democrats’ outbreak aid and other measures for high inflation; Democrats place the blame for rising prices on avaricious businesses and supply networks.
According to studies, both sky-high supply and demand limits are responsible for driving inflation, and Fed policymakers say they are dedicated to reducing it.
Brown’s letter is uncertain to change their minds, but they are anticipated to at least start discussing reducing rate increases when they meet on November 1-2.
Despite this, and even though policymakers aim to avoid politics and assert that their very efficacy depends on political independence, Brown’s letter highlights the political environment in which the Fed functions.
When making choices at the upcoming FOMC meeting, the authorities must demonstrate their dedication to the dual mandate and the duty to promote maximum employment, Brown stated.
Meanwhile, on the other frontier of banks, we see that on Wednesday, the Bank of Canada issued a smaller-than-anticipated 50-basis point rate increase and stated that future hikes would depend on how effectively tighter policy was slowing demand and containing inflation.

In a routine move, the central bank raised its policy rate by 350 basis points since March, from 3.25% to 3.75%. Before the decision, economists and the money markets were predicting a 75-bp move.
With today’s interest rate increase, the Bank of Canada appears to be growing more confident that its current measures will be sufficient to combat inflation. However, by acting more slowly than markets were expecting, the Bank runs the risk of sounding too dovish, which it will ultimately have to unwind.

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