Federal Reserve policymakers showered cold water on investors’ hopes for a pause in rate hikes as they stress the need to contain and warn about runaway inflation economic pain come.
In speeches this week, central bank officials reiterated their determination to tighten monetary policy sufficiently and stressed their commitment to curbing persistently high consumer prices.
San Francisco Fed Chairwoman Mary Daly said in an interview with CNBC on Wednesday that she sees interest rates reaching a range of 4.75% to 5.25%. With the benchmark overnight interest rate now in a range of 3.75% to 4% – already well within the restrictive zone – this would mean another hike of 125 basis points.
Although policymakers have acknowledged it may be time to slow the pace of interest rate hikes after a government report earlier this month showed inflation had eased in October, they have stressed that does not mean they will want to suspend interest rate hikes altogether.
“Pausing is off the table at the moment, it’s not even part of the discussion,” Daly said. “Right now, the discussion is rightly about slowing the pace.”
James Bullard, President of the St. Louis Fed, was similar, forecasting interest rates to rise to at least 5% to 5.25% and possibly as high as 7%.
“In the past I’ve said 4.75 to 5 percent,” he told reporters Thursday. “Based on that analysis today I would say 5% to 5.25%. This is a minimum level. According to this analysis, that would at least put us in the zone.”
That The Fed hiked interest rates In early November, it rose 75 basis points for the fourth consecutive day as it seeks to bring inflation closer to its 2% target with the most aggressive tightening since the 1980s.
Some policymakers, including Daly, have indicated they prefer a 50 basis point hike in December, but Bullard said he would look into it Chairman Jerome Powell to make the decision.
Traders widely expect the Fed to approve a smaller half-point rate hike at the end of a two-day meeting on Dec. 14, although 20% still expect another outsized 75 basis-point hike.
Federal Reserve Governor Christopher Waller warned earlier this week that a smaller rate hike does not mean officials are close to a pause.
“These interest rates are going to stay — keep going up — and they’re going to stay high for a while until we see that inflation getting closer to our target,” Waller said at 6:00 p.m. Monday Conference of the UBS Group AG in Australia. “We still have a long way to go. It doesn’t end in the next one or two meetings.”
Fed officials’ comments echo Powell’s earlier this month. Powell struck a restrictive tone during his press conference after the Nov. 2 meeting Wall Street Interpreted a new line in the Fed’s updated statement to mean that the central bank is considering slowing its aggressive rate hike path in the coming meetings.
“Let me say that,” Powell told reporters. “It is very premature to think of a break. When people hear delays, they think of pauses. In my view, it is very premature to talk about pausing our rate hikes. We still have a long way to go.”