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On Thursday, Fed speakers kept singing the same battle rhyme. Loretta Mester said the US central bank has more work to do to tame inflation and she has not seen the evidence needed to convince her that the policymakers can slow the pace of interest rate hikes as investors expect the Fed to deliver a fourth 75-basis-point rate hike next month.
“We have to bring interest rates up to a level that will get inflation on that 2% path, and I have not seen the compelling evidence that I need to see that would suggest that we could start reducing the pace at which we’re going,” Mester said Thursday during a virtual event organized by the Council for Economic Education.
Fed officials are raising interest rates at the fastest in decades as they work to combat high inflation. Policymakers lifted rates by 75 basis points last month to a target range of 3% to 3.25% and median projections show they anticipate rates will go to 4.4% by the end of this year.
Policymakers say they will do what it takes to get inflation under control, even if their efforts cause pain for businesses and households. Fed officials project the unemployment rate may rise to 4.4% from the current rate of 3.7%, which is near a 50-year low. The Labour Department will issue a fresh monthly update on the US job market on Friday.
On Thursday also, Chicago Fed President Charles Evans said “Inflation is very high right now and that’s the issue that’s top of mind for the Fed and everyone”. “Momentum in core inflation” is most concerning to the Fed, he added. High inflation has spread from a limited number of sectors to a much broader range of products, Evans added.
Evans expects balance sheet reduction to be completed in about three years. “Our balance sheet will always grow with the U.S. economy,” he said. “It will never be back at the $800B level it was in 2007.”
On Wednesday, Atlanta Fed President Raphael Bostic said he expects the fed funds rate will need to reach 4.0%-4.5% and hold them there a while to see how the economy and price respond.
The US Fed needs to keep raising interest rates into early next year to bring down stubbornly high inflation, Governor Christopher Waller said on Thursday in a hawkish speech suggesting he sees little reason to ease the pace of Fed policy tightening.
“Inflation is far from the FOMC’s goal and not likely to fall quickly,” Waller said, referring to the Federal Open Market Committee at the U.S. central bank that sets interest rates for the world’s biggest economy. “This is not the inflation outcome I am looking for to support a slower pace of rate hikes or a lower terminal policy rate” than that projected by policymakers last month.
“I imagine we will have a very thoughtful discussion about the pace of tightening at our next meeting,” Waller said, noting that there has been little progress on inflation and “until that progress is both meaningful and persistent, I support continued rate increases, along with ongoing reductions in the Fed’s balance sheet, to help restrain aggregate demand”.
