Fed officials remain firm on need for tighter monetary policy

Two of the Federal Reserve’s most stimulus-prone officials signaled on Tuesday that they and their colleagues remain steadfast and “completely united” in raising U.S. rates to a level that will more significantly constrain economic activity. and control the highest inflation since the 1980s.

In addition, one of them — San Francisco Fed Chair Mary Daly — said she was “intrigued” by bond market prices that reflect investor expectations that the central bank will cut rates in the first half of next year. .

On the contrary, she said her expectation is that the Fed will continue raising rates for now and then hold them “for awhile,” remarks that have triggered a wave of selling in interest rate futures markets.

Fed Chair Jerome Powell said last week the central bank may consider another “extraordinarily large” rate hike at its Sept. dozen hotspots in data covering inflation, employment, consumer spending and economic growth between now and the date of the meeting.

Chicago Fed President Charles Evans said on Tuesday that if inflation doesn’t subside by then, he will advocate such a move.

“If you really think things aren’t getting better… 50 (base points) is a reasonable assessment, but 75 could also be fine. I doubt more would be needed,” Evans told reporters during a question-and-answer session at the regional bank’s Chicago headquarters, effectively dismissing the prospect of a full 1 percentage point increase next month.

Evans, however, added that he still expects that if inflation finally starts to ease, the central bank could proceed with a 50-bp hike next month, followed by a series of 25-bp hikes until the first. part of next year.

The central bank raised its lending rate by another 0.75 percentage point last week, to a range between 2.25% and 2.50%.

The Fed has raised rates by 2.25 points since March as policymakers have been increasingly aggressive in trying to stave off stubbornly high inflation, even as recession fears intensify.

Evans noted that he thinks the Fed’s interest rate will have to rise to between 3.75% and 4.00% by the end of next year, but cautioned against taking too fast a trajectory to get there if the bank has to unexpectedly pull back. in the face of a change in the scenario.

Daly was even more emphatic in dismissing prices in interest rate futures markets that suggest an abrupt shift in the Fed’s direction in early 2023, saying the central bank’s job of reducing inflation is “not even close” to an end.

“That wouldn’t be my perspective,” she said in an interview broadcast on LinkedIn and done by a CNBC anchor.

“My perspective, or the perspective that I think is most likely, is really that we will raise the interest rate and then keep it for some time at the level that we think is appropriate.”