More Fed officials point to need for rate hikes

Two Federal Reserve officials on Friday joined a chorus of Federal Reserve members who signaled this week that interest rates will need to rise to successfully curb inflation, though one avoided inferring too much from recent economic data and unexpectedly strong from the United States.

“I think there’s a long way to go before we hit our 2% inflation target and I think we’re going to have to continue to raise the interest rate until we see a lot more progress on that,” Fed Director Michelle Bowman said during an appearance before a bankers association in Nashville, Tennessee, referring to an inflation rate that is still more than twice the Fed’s target.

“I think we’re not seeing what we need to see, especially with inflation, those numbers have been jumping up a little bit,” Bowman said. “We were seeing some progress in reducing inflation towards the end of last year, but some of the data that we are seeing at the beginning of this year is not tracking the consistent reduction in inflation in the way that I would like to see it.”

She pointed to a surprisingly strong employment report in January, which showed more than half a million job openings, and robust consumer spending data as evidence that central bank actions had not yet had enough of an impact, and also warned that geopolitical risks could increase energy costs again.

The Fed, in its last meeting, raised the interest rate by 0.25 percentage points, to a range between 4.5% and 4.75%, after previous hikes of 0.5 and 0.75 percentage points. Most Fed officials in December saw rates peak between 5% and 5.25% this year, a projection that will be updated at the Fed’s next meeting on March 21-22.

On Thursday, two other Fed officials said the central bank should have raised rates further earlier this month, and warned that further hikes in borrowing costs were essential to bring inflation back to desired levels. , while other policymakers earlier in the week kept the door firmly open to a terminal rate above 5.1%.

In a separate appearance on Friday, Richmond Fed President Thomas Barkin also said the Fed will need to raise rates, although he noted he would prefer to stick with slower increases of 0.25 percentage points and decide on one point. higher or lower as the path of inflation becomes clearer.

“Returning inflation to target will require more rate hikes,” Barkin told reporters after an event in Rosslyn, Virginia. “How many of those, I think we’ll have to see… what you see is progress, but slow progress, you don’t see victory.”

Since last week’s Department of Labor report showing the unemployment rate fell in January to the lowest level since 1969, and stronger than expected economic data throughout this week, bets in financial markets have rallied on around a “higher longer” path for US borrowing costs.

Futures linked to the Fed’s interest rate show that traders now expect the central bank to raise rates by a further 75 basis points by mid-year, taking the benchmark rate to a range of 5.25% to 5.5 %. A little over a week ago, financial markets did not expect the Fed’s interest rate to exceed 5%.