Fed officials see US interest rates rise further

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, US, March 6, 2019. REUTERS / Lucas Jackson

Aug 30 (Reuters) – US Federal Reserve officials on Tuesday reiterated their support for further interest rate increases to quell inflation, with the New York Fed chief saying the central bank will likely need to raise interest rates “fairly higher.” 3.5% and keep it there until the end of 2023.

“My view is that we need to have some kind of policy stance — push inflation down, make demand and supply consistent — it’s going to take longer, and it will continue next year,” New York Fed President John Williams told the Wall Street Journal. “Based on what I see in the inflation data, and what I see in the economy, it will be a while before I expect to see adjustments in rates of decline.”

The Fed in March embarked on what would become the sharpest round of rate hikes since the 1980s, and Fed Chair Jerome Powell made clear last week that he and his fellow monetary policymakers were prepared to raise borrowing costs as high as needed to constrain growth and lower current inflation. . It operates more than triple the Federal Reserve’s 2% target.

Doing so, he said, would likely mean a softer and more painful job market for families and businesses; But he said allowing inflation to stay high would do even worse damage. Read more

Williams, who plays a key role in guiding monetary policy, as vice chair of the Fed’s rate-setting committee, said the central bank’s decision to raise interest rates for the third consecutive time by 75 basis points next month or a smaller hike of half a point. It will depend on incoming data, which includes the monthly jobs report on Friday and the CPI reading just days before the September 20-21 meeting.

But Williams said a September decision will also depend on the opinions of policymakers on where they think interest rates should be by the end of the year.

“If it’s clear based on the data that we need to raise rates significantly by the end of the year, that obviously tells us a decision at any given meeting,” Williams said. “We’re going to need restrictive policy for a while — it’s not something we’re going to do for a very short time and then change course; it’s really about getting policies in place to get inflation down and keep it that way” to achieve the 2% federal inflation target.

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

In June, the last time the central bank published a summary of policy makers’ rate path expectations, US central bankers saw rates rise to 3.4% by the end of the year.

Financial markets are pricing in a sharp increase. Fed policy-linked futures reflect traders’ bets that prices will rise by another 1.5 percentage points by the end of the year. There are three more policy-making meetings this year, including next month’s.

“I don’t think we’re done with tightening. Inflation is still very high,” Atlanta Fed President Rafael Bostic wrote in an article published Tuesday on the regional bank’s website. “However, the data coming in – if it clearly shows that inflation is starting to slow – may give us a reason to come back… We’ll have to see how that data comes in.”

Bostick said inflation by the Fed’s preferred metric slowed to 6.3% in July, down from 6.8% in June, but price pressures remain “stubbornly widespread.”

Other data shows that key sectors of the economy remain tight – including data released on Tuesday showing that job opportunities remained high through July, a possible indication of persistent wage pressures.

Bostik described the overall picture as “blurry” and said that while he was focused on the trajectory of inflation, he was also sensitive that moving too aggressively to raise interest rates also carries risks.

“Moving either too aggressively or too timidly has its downsides,” Bostic wrote, with soaring entrenched inflation looming if the Federal Reserve does not squeeze it out of the economy, and lost growth and rising unemployment as a result of “policy tightening.”

For Richmond Fed President Thomas Barkin, the Fed clearly needs to raise interest rates, although exactly how much next month will depend on upcoming jobs and inflation reports. “I wouldn’t prejudge that,” Barkin told Yahoo Finance, adding that the Fed needs to put interest rates “in a restricted area” to bring down inflation.

(This story is reworked to fix the typo in the last paragraph)

(Report) by Ann Sapphire, Lindsey Densmeyer and Howard Schneider; Editing by Andrea Ricci

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