Federal officials say more rate hikes coming
Federal Reserve policymakers stressed on Monday that they will raise borrowing costs further to curb inflation, with one key official saying that he sees interest rates heading somewhat higher than he forecast just a couple of months ago.
“Stronger demand for labor, stronger demand in the economy than I previously thought, and then somewhat higher underlying inflation suggest a modestly higher path for policy relative to September,”
Federal Reserve Bank of New York president John Williams said Monday.
“Not a massive change but somewhat higher.”
Federal Reserve Bank of St Louis president James Bullard, one of the central bank’s most hawkish officials, said he thinks “markets are underpricing a little bit the risk that the FOMC (Federal Open Market Committee) will have to be more aggressive rather than less aggressive in order to contain the very substantial inflation that we have in the US”.
Federal officials have signaled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on Dec 13-14, after four successive 75 basis-point hikes.
Policymakers could also raise their forecasts – though it is not clear by how much – for how high rates will eventually go when they update their economic projections during the meeting.
Federal Reserve Bank of Richmond president Thomas Barkin said he favored slowing the pace of rate hikes in recognition of past aggressive moves, while adding that the peak may need to be held for longer at potentially higher levels to dampen inflation.
“I am very supportive of a path that is slower, probably longer and potentially higher than where we were before,” Barkin said. He added that he expects peak rates “certainly” to be higher than he thought a couple months ago.
The main rate is currently in a target range of 3.75 percent to 4 percent. Investors see it peaking around 5 percent in 2023, according to pricing in futures contracts.
While the latest projections, from September, do show Fed officials expect interest rate cuts in 2024, policymakers have largely shied away from discussing forecasts that far out, instead focusing on the need to raise rates and keep them elevated to ensure inflation falls.
Also, Federal Reserve Bank of Cleveland president Loretta Mester said in an interview with the Financial Times, published on Monday, that the central bank was not yet near a pause in its rate-hike campaign.
Federal Reserve vice-chair Lael Brainard said US central bankers must lean against the risk of inflation expectations rising above the 2 per cent target in a world where inflation may be less stable than in recent decades.
“In the presence of a protracted series of supply shocks and high inflation, it is important for monetary policy to take a risk-management posture to avoid the risk of inflation expectations drifting above target,” she said.
“A drawn-out sequence of adverse supply shocks that has the cumulative effect of constraining potential output for an extended period is likely to call for monetary policy tightening to restore balance between demand and supply.”