Fed officials remain committed to making policy tighter

Aug 2 (Reuters) – Two of the Federal Reserve’s most “dovish” policymakers signaled on Tuesday that they and their colleagues remain committed and “completely united” in pushing U.S. interest rates to a level that will will further dampen economic activity and put a dent in the highest inflation since the 1980s.

Moreover, one of them – San Francisco Fed President Mary Daly – said she was “intrigued” by bond market prices that reflect investors’ expectations that the central bank will move to higher levels. rate cuts in the first half of next year. On the contrary, she said she expected the Fed to keep raising rates for the time being and then hold them “for a while,” remarks that sparked a wave of selling in markets at rate term.

Fed Chairman Jerome Powell said last week that the central bank could consider another “unusually large” rate hike at its September 20-21 policy meeting, with officials guided in their decision-making by over a dozen critical data points covering inflation, employment, consumption. spending and economic growth by then.

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Chicago Fed Chairman Charles Evans said Tuesday that if inflation does not come down by then, he would support such a move.

“If you really thought things weren’t getting better… 50 (basis points) is a reasonable estimate, but 75 could also be fine. I doubt more is needed,” Evans told reporters during a briefing. question-and-answer session. at the regional bank’s headquarters in Chicago, ruling out the prospect of a rate hike of a full percentage point next month.

Evans, however, added that he still hopes that if inflation finally starts to fall, the central bank can proceed with a 50 basis point hike next month, followed by a series of 25 basis point hikes. basis during the first part of next year.

The central bank raised its benchmark overnight lending rate by three-quarters of a percentage point last week to a target range of between 2.25% and 2.50%. It has hiked that rate by 225 basis points since March as authorities increasingly aggressively try to stifle stubbornly high inflation even as recession fears gather pace.

‘FAR’

Evans noted that he thinks the key Fed rate will need to rise to between 3.75% and 4.00% by the end of next year, but cautioned against going too fast to get there. if she were to unexpectedly fall back on the back of a changing landscape. .

The San Francisco Fed’s Daly was even more adamant in pushing back on rates futures market prices that had suggested a sharp change in direction from the Fed in early 2023, saying the central bank’s work to reducing inflation is “far from” almost done.

“That wouldn’t be my modal perspective,” she said in a LinkedIn interview hosted by a CNBC anchor. “My modal view, or the view that I think is most likely, is really that we raise interest rates and then hold them for a period of time at whatever level we think is appropriate.”

“We’ve gotten off to a good start, and I’m really happy with where we’ve gotten to this stage,” but there’s still “a long way to go” to bring inflation down from four-decade highs, Daly said.

The economy continues to send mixed signals, with the tightest labor market in decades pushing up labor costs sharply in the second quarter, but economic growth contracting for a second straight quarter. The Fed is trying to rein in demand across the economy to help ease price pressures without causing a spike in unemployment.

In an encouraging sign, U.S. job openings fell the most in just over two years in June as demand for workers eased in the retail and wholesale sectors, Tuesday reported. the Labor Department, suggesting that wage growth may slow in the second half of 2022. . Learn more

Evans said he had lowered his expectations for economic growth this year and now sees it at 1% or less, but added that he still sees a path for the Fed to reduce the inflation while keeping the unemployment rate below 4.5%.

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Reporting by Lindsay Dunsmuir and Dan Burns; Editing by Chizu Nomiyama and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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