Fed officials see more hikes than necessary, although news on prices is better

(Bloomberg) — Federal Reserve officials stressed the need to continue raising interest rates while acknowledging recent encouraging news about US consumer prices.

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Comments by two regional Fed chairmen and two governors on Tuesday maintained a cautiously hawkish tone from policymakers that inflation remains too high, even as they signal a willingness to moderate the magnitude of their rate hikes.

“There are glimmers of hope,” Atlanta Fed chief Raphael Bostic said in an essay published on the Atlanta Fed’s website Tuesday, citing signs including a slowing rise in commodity prices. “I will need to see indicators of a broad-based inflation slowdown.”

The US Federal Reserve raised interest rates by 75 basis points for the fourth consecutive day on Nov. 2, raising the target range to 3.75%-4% from near zero in March as it struggles to contain inflation, the highest in four decades to contain While Bostic didn’t comment specifically on the December session, markets broadly expect a half-point hike next month.

Bostic said the goal of monetary policy is to be “sufficiently restrictive to bring inflation back towards our target,” adding, “We’re not there now, so I expect more rate hikes will be needed.” will.”

Financial markets were buoyed by milder than expected consumer inflation last month, raising hopes that price pressures are beginning to ease.

Data released last week showed that consumer prices fell more-than-expected in October, with the consumer price index rising 7.7% year-on-year from 8.2% the previous month.

Bostic stressed that he would like to see a slowdown in price increases for both services and goods.

“We haven’t had that yet,” he said, adding that the key may be a better balance in the labor market as service industries are labour-intensive. But for now, “The job market remains tight as job vacancies still far outstrip the number of job seekers. That creates upward pressure on wages,” he said.

He also noted that the Fed’s policy committee added a comment to its recent statement that monetary policy was operating with a lag. He said the exact lag between policy action and the impact on prices is uncertain and some estimates suggest it could take “18 months to two years” to bring inflation down.

That means the Fed “needs to calibrate policy today, knowing that we won’t see its full impact on inflation for months. In these circumstances, we need to look at economic signals other than inflation as guides on our path.”

The tightening campaign is the most aggressive since the 1980s and several Fed officials have begun to hint that the moment for moderation is near while stressing that this will not mean an end to rate hikes.

Philadelphia Fed President Patrick Harker said earlier Tuesday that he expects officials to slow the pace of their rate hikes “over the coming months” as monetary policy nears sufficiently restrictive levels.

That was echoed by Fed Deputy Chair Lael Brainard, who said at a Monday event at Bloomberg’s Washington office that “it will likely be appropriate to move to a slower pace of hikes soon,” while noting that officials had extra work to do have to do.

Rate hikes have yet to cool the hot US job market. Employers added 261k jobs in October while unemployment remains low at 3.7% – supporting consumer confidence and spending.

Harker said there are signs the economy is slowing, although the job market remains hot.

“Data on credit card purchases shows that consumer spending, which accounts for about 70% of economic activity in the United States, is slowing, with services and retail leading the decline,” he said. “Investment in housing has slacked off and even the manufacturing boom that has fueled the economy is starting to slow down.”

During a hearing before the US Senate Banking Committee in Washington that focused primarily on financial regulation, Fed Deputy Chairman for Oversight Michael Barr warned the US economy would take a hit as the central bank faces high inflation be.

“I think the thing about it is that we’re going to see a significant slowdown in the economy,” he said in a lively exchange with Republican Senator John Kennedy of Louisiana, who pressed him when asked how high the unemployment rate could go at the Central Bank tightens politics.

Fed officials in September forecast that unemployment would rise to 4.4% by 2023, according to their median forecast.

Barr declined to comment on more pessimistic predictions that the unemployment rate will actually rise much higher as a result of the Fed’s actions, although he did agree it would rise.

Kennedy’s response was succinct: “Duh.”

–Assisted by Matthew Boesler.

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