Standard Charted CEO has commented on the likelihood of the U.S. Federal Reserve ( Fed) temporarily pausing interest rate hikes temporarily. However, he has added that he does not expect the end of the rate hikes cycle to be anytime soon as inflation is still running wild.
Analysts expect a pause or slowdown of US rates hikes
Via a statement shared with CNBC, CEO Bill Winters claims that the Central Bank will most likely use its June meeting to explain how its latest battle with inflation has been going and offer the country’s wage data.
“If we can get the regular wage growth cycle back under control, then I think the Fed can stop here. But it’s not done yet,” he said.
Bill Winters’s words echo a report by Fintech Express from last week that expected both the ECB and the U.S. federal reserve to rethink the recent hikes in interest rates. This aggressive money-tightening agenda by the two banks has contributed to increased pains in the markets and needs a break though the work is yet to be done.
Winters explain that Central Bankers in the U.S. and other locations are wary about the rising wage rates. As such, they fear such occurrences could prompt a wage-price spiral, which would embed inflation.
To avoid such, the Central Banks need to ensure that job and wage rates growth is cooling before they end the rates hiking cycle entirely.
“The fact is, job growth is still pretty strong, wage growth is still pretty strong. And that’s not just in the U.S., that’s in Europe and the U.K. as well, as in many other parts of the world,” Winters said.
“So, if we can control the regular wage growth cycle, then I think the Fed can stop here. But it’s not done yet,” he added.
Fed pausing the rates hikes could be a mistake-Fed Historian
As the rumors of the possibility of the Fed pausing the rates hike rage, a Fed Historian is not happy with it. He claims that the possibility of such a decision being taken would mean a slower sliding of the inflation rates. The rates have been falling following the 10 consecutive hikes that have been done by the Fed.
Now, Gary Richardson, a Fed historian is worried that the authority has still not learned from its past mistakes. He says that the longer the rates hikes are paused the longer it will take to tame inflation.
“The more times you pause [rate hikes], the longer the problem is going to go on,” he told me. “That’s a worry here.”
He explained that a premature retreat could cause a series of problems for the country’s economic stability as the Fed could lose its grip on inflation. He noted how the Chair of the Federal Reserve in 1972 hiked interest rates till 1974 only to retreat when he noticed an improvement.
However, the decision proved wrong as the inflation roared back forcing the inevitable change of the administrators and Paul Volcker took over. He tamed double-digit inflation — but only by raising borrowing costs high enough to trigger back-to-back recessions in the early 1980s that at one point pushed unemployment above 10%.
Richardson, who is also an economics professor at the University of California added that if the Fed doesn’t stop the inflation now, history might repeat itself. Keep watching Fintech Express for updates on Macro-Finance and other Fintech-related stories.