US Federal Reserve policymakers on Monday said that they would raise borrowing costs further to curb inflation, with one key official saying that he sees interest rates heading somewhat higher than he had forecast just a couple of months ago.
“Stronger demand for labor, stronger demand in the economy than I previously thought and then somewhat higher underlying inflation, suggest a modestly higher path for policy relative to September,” New York Fed President John Williams told reporters after an event hosted by the Economic Club of New York. “Not a massive change, but somewhat higher.”
At a separate event, St Louis Fed President James Bullard, one of the central bank’s most hawkish officials, said he thinks “markets are underpricing a little bit the risk that the FOMC [Federal Open Market Committee] will have to be more aggressive rather than less aggressive in order to contain the very substantial inflation that we have in the US.”
Photo: Reuters
Fed officials have signaled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on Dec. 13-14, after four successive 75 basis-point hikes.
Policymakers could also raise their forecasts — although it is not clear by how much — for how high rates will eventually go when they update their economic projections during the meeting.
In an interview with Bloomberg Television, Fed Bank of Richmond President Thomas Barkin said he favored slowing the pace of rate hikes in recognition of past aggressive moves, while adding that the peak might need to be held for longer at potentially higher levels to dampen inflation.
“I’m very supportive of a path that is slower, probably longer and potentially higher than where we were before,” Barkin said. He added that he expects peak rates “certainly” to be higher than he thought a couple months ago.
The main rate is in a target range of 3.75 percent to 4 percent.
Williams, who also serves as vice chair of the policysetting FOMC, mused about a path to eventual rate cuts, but said that moment is at least a year away.
“I do see a point, probably in 2024, that we’ll start bringing down nominal interest rates because inflation is coming down and we would want to have real interest rates appropriately positioned,” he said.
While the latest projections, from September, do show Fed officials expect interest rate cuts in 2024, policymakers have largely shied away from discussing forecasts that far out, instead focusing on the need to raise rates and keep them elevated to ensure inflation falls.
Cleveland Fed President Loretta Mester said in an interview with the Financial Times, published on Monday, that the central bank was not yet near a pause in its rate hike campaign.
Minutes from the Nov. 1-2 gathering showed widespread support among officials for calibrating their moves, with a “substantial majority” agreeing that it would soon be time to slow the pace of rate increases.
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