Fed eral Reserve policymakers signaled on Wednesday that they would proceed . With further interest rate hikes, with many favoring a top policy rate of at least 5% even as inflation . Shows signs of peaking and economic activity is slowing.
“we have to continue, 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 comments appeared to reflect a shared view among his fellow policymakers. Most of whom penciled in policy rates of 5.00%-5.25% next month through December.
Mester said that for his part he expects the Fed’s policy rate to go “a little bit higher” than it has and . Stay there for some time to further reduce 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 raise that rate by a quarter of a percentage point at the end of its Jan. 31-Feb. 1 meeting.
But slower spending, inflation, and manufacturing — all reported earlier . Wednesday — helped fuel expectations that the . Fed will end its current round of rate hikes sooner than . Meister and most of his colleagues expected, with the policy rate shy of 5%.
The central bank began raising borrowing costs last March, when policy rates were in the 0%-0.25% range and . Inflation began a climb that would see it rise to a 40-year high, several times the Fed’s 2% target.
Like Meister, St. Louis . Fed President James Bullard, speaking to the Wall Street Journal earlier. Said he sees the policy rate rising to a range of 5.25%-5.50%, adding . That policymakers should get it above 5% as soon as possible. We can.”
Most Fed officials have expressed support for . Slowing to quarterly-percentage-point rate hikes. After a much faster pace of rate hikes last year to 75-basis-point and half-point hikes.
Bullard grew impatient. Asked if he was open to a half-percentage-point hike at the Fed’s upcoming meeting, he asked . Why not go where we’re supposed to go? … Why stall?”
The answer may be found in part in the latest “Beige Book” report released by the Fed on Wednesday. A compilation of survey data from central bank districts across. The country shows that while prices have continued to rise. The pace is said to have slowed in most districts.
And while employment continued to grow at a “moderate to moderate” pace across much of . The country, and several Fed districts reported moderate economic growth. The New York Fed reported a contraction in activity. Four other districts reported slowdowns or slight declines. And most expected modest growth ahead. .
Still, the mistake . Fed policymakers say they don’t want to make is to stop short of beating inflation. Only to raise rates more later, as happened in the 1970s and 1980s.
Even Philadelphia Fed President Patrick Harker, who is usually less cynical than . Meister or Bullard and wants the Fed to switch to quarterly-percentage-point hikes ahead. Said borrowing costs have risen “some more” before a break.
Dallas Fed President Laurie . Logan supported a slower pace of rate hikes ahead because of . The uncertain outlook and the need to be flexible. But he also indicated that the . Fed may need to raise rates more than expected to. Keep monetary conditions tight enough to reduce inflation.
“we shouldn’t be locked into the highest interest rates,” said Logan in Austin, Texas. He added that even once inflation drops to 2% and the. Fed stops raising rates, the risks will be “double-edged” and further rate hikes may be possible.
In an interview with Reuters on Wednesday. Outgoing Kansas City Fed President Esther George said she felt rates would need to be higher . Than many of her colleagues expected, but she was also willing to go for smaller increases.
“People’s expectations about inflation are starting to come down,” George said. An observation based on conversations with contacts in his Midwest district. “So I’m comfortable starting that step-down process. … I would have been happy to do 25 seconds if I was there.”
George will retire before the Fed’s next meeting and will not attend.
But he added, “We still have downside risks to inflation. I’ve reached a point where it’s falling apart. There are enough problems to say we have to be on 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.