Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

Fed policymakers call for further rate hikes to beat inflation

Published Jan 18, 2023 11:27AM ET Updated Jan 18, 2023 09:10PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration
 
LNN
+0.94%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Howard Schneider and Lindsay (NYSE:LNN) Dunsmuir

(Reuters) -Federal Reserve policymakers on Wednesday signaled they will push on with more interest rate hikes, with several supporting a top policy rate of at least 5% even as inflation shows signs of having peaked and economic activity is slowing.

"I just think we need to keep going, and we'll discuss at the meeting how much to do," Cleveland Fed President Loretta Mester said in an interview with the Associated Press.

The remarks appeared to reflect a widely shared view among her fellow policymakers, most of whom as of December had penciled in a 5.00%-5.25% policy rate in coming months.

Mester said that for her part she expects the Fed's policy rate to need to go "a bit higher" than that, and stay there for some time to further slow inflation.

The Fed's benchmark overnight lending rate currently sits in a target range of 4.25% to 4.50%, and investors expect the Fed to lift that rate by a quarter of a percentage point at the end of its Jan. 31-Feb. 1 meeting.

But slowing spending, inflation, and manufacturing - all reported earlier on Wednesday - have helped stoke expectations that the Fed will end its current round of rate hikes sooner than Mester and most of her colleagues expect, with the policy rate just shy of 5%.

The central bank began raising borrowing costs last March, when the policy rate was in the 0%-0.25% range and inflation was starting to make a climb that would see it rise to 40-year highs, several times the Fed's 2% target.

'WHY STALL?'

Like Mester, St. Louis Fed President James Bullard, speaking with the Wall Street Journal earlier, said he too sees the policy rate rising to the 5.25%-5.50% range, and added that policymakers should get it above 5% "as quickly as we can."

Several Fed officials have expressed support for slowing to quarter-percentage-point rate increases, after last year's much faster pace of rate hikes in mostly 75-basis point and half-point increments.

Bullard expressed more impatience. Asked if he was open to a half-percentage-point increase at the Fed's upcoming meeting, he asked "why not go to where we're supposed to go? ... Why stall?"

The answer may in part be found in the latest "Beige Book" report published by the Fed on Wednesday. The compilation of survey data from the central bank's districts around the country showed that while prices continued to increase, the pace in most districts was reported to have slowed.

And while employment continued to grow at a "modest to moderate" pace in much of the country, and several Fed districts reported modest economic growth, the New York Fed reported a contraction in activity, four other districts reported slowdowns or slight declines, and most expected little growth ahead.

Still, Fed policymakers say the mistake they do not want to make is to stop short of defeating inflation, only to have to raise rates even more to do the job later on, as happened in the 1970s and 1980s

Even Philadelphia Fed President Patrick Harker, who is generally less hawkish than Mester or Bullard and wants the Fed to switch to quarter-percentage-point hikes ahead, sees "a few more" rises in borrowing costs before a pause.

Dallas Fed President Lorie Logan also supports a slower rate hike pace ahead because of the uncertain outlook and the need to be flexible. But she also signaled the Fed may need to raise rates higher than is widely expected to keep financial conditions tight enough to press down on inflation.

"I believe we shouldn’t lock in on a peak interest rate," Logan said in Austin, Texas. She added that even once inflation is headed convincingly down to 2% and the Fed does stop raising rates, the risks will be "two-sided" and that further rate hikes could be in the offing.

In an interview with Reuters on Wednesday, outgoing Kansas City Fed President Esther George said she felt rates would have to move higher than many of her colleagues anticipate, but that she also would have been willing to move in smaller increments.

“People’s expectations about inflation are beginning to move down,” George said, an observation based on conversations with contacts in her Midwest district. “So I’m comfortable beginning that stepped-down process ... I’d be happy to do 25s if I were there.”

George will retire right before the Fed's next meeting and will not participate in it.

But she added, “we still have upside risk to inflation. I don’t think I’ve reached a point where I think it is clearly falling. There are enough issues out there to say we have to guard against them.”

Fed Chair Jerome Powell, who tested positive for COVID-19 on Wednesday and is experiencing mild symptoms from the virus, said after last month's policy meeting that the inflation battle had not been won and that more rate hikes were coming in 2023.

Fed policymakers call for further rate hikes to beat inflation
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (3)
Roger Miller
Roger Miller Jan 18, 2023 7:00PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Inflation is a priority over economic performance, and the two are not always correlated. The peasants are more likely to revolt over higher prices than lack of jobs as it happens less often. One can see this in other economies mismanaged by the central planners.
Bryan Ojeda
Bryan Ojeda Jan 18, 2023 7:00PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yeah them peasants are terrible creatures
Erikke Evans
Erikke Jan 18, 2023 6:49PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Hey Jerome....there's a snake in the house. Stop beating it with a stick every few months and shoot it.
Hank Williams
Hank Williams Jan 18, 2023 5:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The Fed should do two 50 percent hikes and then wait for the employment picture to improve. Too many areas need the effects of higher rates.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email