SEOUL, South Korea, Jan. 21, 2021 /PRNewswire/ -- The US Federal Reserve's ability and resolve to raise interest rates in the event of a surge in inflation could be tested this year according to economists at Seoul, South Korean-based wealth manager, GT Merrill Universal.
The US central bank's Chairman, Jerome Powell reaffirmed his commitment to keeping interest rates in the world's largest economy low for the foreseeable future during an interview on a cable news channel last week.
However, when questioned on the Fed's stomach for raising interest rates, he said, "When the time comes to raise interest rates, we'll certainly do that, and that time, by the way, is no time soon." GT Merrill Universal economists believe that inflation will manifest itself in the US economy this year and they believe the Fed will not raise interest rates, preferring, instead, to allow inflation to run higher than its target.
The Fed undertook unprecedented stimulus measures in response to the coronavirus pandemic in March 2020 when stock and bond markets around the world plunged as global recession loomed.
The central bank has continued to pump liquidity into the financial system since and pledged to stand behind various markets including corporate bonds and the systemically important repo market.
"If inflation rises – and we believe it will – the Fed will be forced to choose between choking off the economic recovery by raising interest rates and effectively abandoning the price stability aspect of its mandate and allowing inflation to run hot," explained an economist at GT Merrill Universal.
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SOURCE GT Merrill Universal
