Fed Policymakers Foresee Need for More Rate Hikes to Control Inflation

Multiple Federal Reserve policymakers are expecting interest-rate hikes to continue, albeit at a smaller magnitude, as the central bank attempts to rein in inflation, with Patrick Harker, president of the Federal Reserve Bank of Philadelphia, predicting the economy will experience only a “modest” 2023 growth

The Federal Reserve is “absolutely committed” Harker is working to bring down inflation to 2 percent, which is what the central bank does by adjusting the monetary policies. said In a speech delivered Jan. 18. “I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed. In my view, hikes of 25 basis points will be appropriate going forward,” He stated.

Last year, the Fed raised the federal funds rate from zero percent to a range of 4.25–4.5 percent.

Harker, speaking at the Lyons Center for Economic Education and Entrepreneurship University of Delaware, called inflation a “scourge” This leads to economic inefficiency and hurts Americans with limited means disproportionately.

The Fed’s goal is to “slow the economy modestly” He also added that he wanted to increase demand in order to keep supply at its best.

December saw a 6.5 percent increase in the Consumer Price Index (CPI) over 12 months. CPI was at or above 65% for every month of 2022. Meanwhile, December core inflation—which excludes food and energy—was recorded at 5.7 percent.

Harker expects core inflation to reach 3.5 percent by 2023, fall to 2.5% in 2024, and then decline further to 2 percentage in 2025. Harker doesn’t expect a recession in his annual gross domestic products (GDP) growth, but he does not anticipate one. “modest” At 1 percent in 2023, and 2 percent over the next two years.

Rates above 5 Percent

Loretta Mester, President of the Federal Reserve Bank of Cleveland believes that tightening too much the interest rate will not bring in enough money. “larger risk” It is suggested that the issue should be addressed. “little bit” above the 5.0–5.25 percent range which the policymakers have projected for by the end of 2023.

“We’re not at 5 percent yet, we’re not above 5 percent, which I think is going to be needed given where my projections are for the economy,” She said it in interview Associate Press“I just think we need to keep going, and we’ll discuss at the meeting how much to do.”

Mester did not specify how much of a hike Mester would like the Fed to approve at its next meeting later this year. She did note that markets were able handle the 50-basisp-point increase in December.

Chief of the Cleveland Fed wants to see inflation “moving down faster” Before she supports a pause in rate increases in the next months.

“We’re starting to see our policy actions do what they’re intended to do,” She said. “But I do believe we have to continue raising … and then hold for a while so that we get back to price stability in a timely way.”

Rate hikes slowing down

The following is an address Lorie Logan, Dallas Fed President on Jan. 18, called for a slower pace of interest-rate hikes in order to better align the monetary policy with economic uncertainty.

“If you’re on a road trip and you encounter foggy weather or a dangerous highway, it’s a good idea to slow down. Likewise if you’re a policymaker in today’s complex economic and financial environment,” She said it in her speech.

“That’s why I supported the FOMC’s [Federal Open Market Committee] decision last month to reduce the pace of rate increases. And the same considerations suggest slowing the pace further at the upcoming meeting.”

She stressed that slowing down the rate of inflation increases does not mean less commitment to bringing down inflation below 2 percent.

Logan’s “own view” The Fed will probably need to continue “gradually raising” Interest rates will remain the same until there are no more “convincing evidence” that inflation is headed towards the central bank’s 2 percent goal in a sustainable manner.

*As an Amazon Associate I earn from qualifying purchases