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Fed officials see U.S. interest rates rising further

Economy Aug 30, 2022 09:00PM ET
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© Reuters. FILE PHOTO: John C. Williams, president and CEO of the Federal Reserve Bank of New York speaks to the Economic Club of New York in the Manhattan borough of New York, U.S., March 6, 2019. REUTERS/Lucas Jackson
 
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By Ann Saphir and Lindsay (NYSE:LNN) Dunsmuir

(Reuters) - U.S. Federal Reserve officials on Tuesday reiterated their support for further interest-rate hikes to quell inflation, with the influential chief of the New York Fed saying the central bank will likely need to get its policy rate "somewhat above" 3.5% and keep it there through the end of 2023.

"I see us needing to kind of hold a policy stance - pushing inflation down, bringing demand and supply into alignment - it's going to take longer, will continue through next year," New York Fed chief John Williams told the Wall Street Journal. "Based on what I'm seeing in the inflation data, and what I'm seeing in the economy, it's going to take some time before I would expect to see adjustments of rates downward."

The Fed in March embarked on what's become the sharpest round of rate hikes since the 1980s, and Fed Chair Jerome Powell last week made clear he and fellow monetary policymakers are prepared to raise borrowing costs as high as needed to restrict growth and reduce inflation that's currently running at more than three times the Fed's 2% target.

Doing so, he said, will likely mean a softer labor market and pain for households and businesses; but allowing inflation to remain high would cause even worse damage, he said.

Williams, who as vice chair of the Fed's rate-setting panel plays a key role steering monetary policy, said that the central bank's decision on whether to deliver a third straight 75-basis-point rate hike next month or a smaller half-point hike will depend on the incoming data, which includes Friday's monthly jobs report and the consumer price index reading just days before the Sept. 20-21 meeting.

But September's decision will also, Williams said, depend on policymakers' views of where they think interest rates will need to be by the end of the year.

"If based on the data it's clear that we need to get interest rates significantly higher by the end of the year, then obviously that informs a decision at any given meeting," Williams said. "We're going to need to have restrictive policy for some time - this is not something that we're going do for a very short period of time and then change course; it's really more about getting policies to the right place to get inflation down and keeping it in this position" to achieve the Fed's 2% inflation goal.

The Fed's current target range for the benchmark Fed funds rate is 2.25-2.50%.

In June, the last time the central bank published a summary of policymakers' rate-path expectations, U.S. central bankers saw rates rising to 3.4% by year end.

Financial markets are pricing in a steeper increase. Futures contracts tied to the Fed policy reflect trader bets that rates will rise 1.5 percentage points further by year end. There are three more policy-setting meetings this year, including next month's.

"I don't think we are done tightening. Inflation remains too high," Atlanta Fed President Raphael Bostic wrote in an essay published Tuesday on the regional bank's website. "That said, incoming data - if they clearly show that inflation has begun slowing - might give us reason to dial back ... We will have to see how those data come in."

Inflation by the Fed's preferred measure slowed to 6.3% in July, down from 6.8% in June, but price pressures remain "stubbornly widespread," Bostic said.

Other data show key segments of the economy remain tight - including data released on Tuesday showing job openings remained high through July, a possible indication of continued wage pressures

Bostic called the overall picture "fuzzy," and said that while focused on the path of inflation, he was also sensitive that moving too aggressively to raise interest rates also carried risks.

"Moving either too aggressively or too timidly has downsides," Bostic wrote, with entrenched higher inflation looming if the Fed does not squeeze it from the economy, and lost growth and higher unemployment the outcome of "severe policy tightening."

To Richmond Fed President Thomas Barkin, it's clear the Fed needs to raise interest rates, although exactly how much next month will hinge on the upcoming jobs and inflation reports. "I'm not going to prejudge it," Barkin told Yahoo Finance, adding that the Fed does need to get rates "into restrictive territory" to bring inflation down.

(This story refiles to fix typographical error in last paragraph)

Fed officials see U.S. interest rates rising further
 

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Comments (5)
EL LA
EL LA Aug 30, 2022 4:35PM ET
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These ghouls won't be happy until everyone is jobless and desperate. Just for the sake of cheap gas.
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EL LA
EL LA Aug 30, 2022 4:35PM ET
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Karl Kessler  If the Fed takes away your job you don't have to drive to work. That's the goal. Decrease demand, right?!
Karl Kessler
Karl Kessler Aug 30, 2022 4:35PM ET
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EL LA Guess what, you're going to lose your job anyway, if all of everyone's disposable income goes to gasoline. Everyone will drive to work, but nobody will have any cash left over to go to the restaurants, dry cleaners, ball game, etc., etc., etc., and everyone gets laid off at once. The Fed is hoping to prevent that. WAY too late, actually.
EL LA
EL LA Aug 30, 2022 4:35PM ET
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Karl Kessler  Not so. In a capitalist society oil and gas production should be allowed to rise and fill the need. Instead, you have control freaks standing in the way of production while injecting government funds into toxic "renewables". On top of that you have countries at war who refuse to sit down and make peace, even if it means their stubborn noses could freeze off in the meantime.
Karl Kessler
Karl Kessler Aug 30, 2022 4:35PM ET
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EL LA Shale production is too expensive and loses money. And the best plays have given their best flows already. That's why investors pulled back and there isn't going to be any repeat of the so-called 'revolution'. Yeah, renewables aren't going to cut it, and yeah our politicians are lame. And the war should have been prevented. We could have prevented it, but we didn't want to. All this adds up to a huge inflationary push. And you either stop it, or it stops you.
First Last
First Last Aug 30, 2022 4:35PM ET
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"And the war should have been prevented" --  Kinda hard w/ Trump & his retrumplicans praising/encouraging Putin
jason xx
jason xx Aug 30, 2022 4:28PM ET
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Oh really I thought they were stopping at 2%. These people are a waste of breath. it's been 3.5% all year we get it.
Brad Albright
Brad Albright Aug 30, 2022 4:28PM ET
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You are confusing fed funds rate with GDP target.
Bhagwan Dass
Bhagwan Dass Aug 30, 2022 12:24PM ET
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sell us gold
EL LA
EL LA Aug 30, 2022 11:55AM ET
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It sounds like the Fed will keep hiking rates while the government selectively injects inflation only where it wants to see survival. We're back to the Obama years.... may as well cash out and turn out the lights.
Brad Albright
Brad Albright Aug 30, 2022 11:55AM ET
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You don't know what you are talking about.
EL LA
EL LA Aug 30, 2022 11:55AM ET
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Brad Albright  Huge tops formed on all of the major indices ever since Biden took office. Massive tops that finally broke down.  Biden's bear market is starting to sink in deeply. It's a shame people weren't allowed to enjoy a year or two of freedom from oppression after the pandemic masks came off.
carlos guo
carlos guo Aug 30, 2022 11:45AM ET
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"Leadership at the Federal Reserve has become its most diverse ever. There are more female, Black and gay officials contributing to the central bank’s interest-rate decisions than at any time in its 109-year history."-Associated Press...aren't you all happy to see the success of the diversity hiring practices of the Brandon regime! When you think of the current economy and the Brandon regime, just remember that it is a demonstration of what "diversity" has to offer the world! That is their message!
Jeff Chevalier
Jeff Chevalier Aug 30, 2022 11:45AM ET
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The name you're using is Chinese, so I'd be quiet if I were you..
First Last
First Last Aug 30, 2022 11:45AM ET
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Jeff Chevalier    A CCP stooge who's also retrumplican is no surprise.
 
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