Is the Fed preparing to pivot on interest rate hikes? Not so fast, say policymakers

Federal Reserve policymakers have poured cold water on investors’ hopes of a pause in interest rate hikes as they stress the need to crush runaway inflation and warn against future economic difficulties.

In speeches this week, central bank officials reiterated their determination to tighten monetary policy sufficiently, hammering home their commitment to containing stubbornly high consumer prices.

San Francisco Fed President Mary Daly said in an interview with CNBC on Wednesday that she sees interest rates peaking in the 4.75% to 5.25% range. With the benchmark federal funds rate now in a range of 3.75% to 4% – already well into restrictive territory – that would imply another 125 basis point increase.

Although policymakers acknowledged that it might be time to start slowing the pace of rate hikes following a government report earlier this month that showed inflation moderating in October, they stressed that this does not mean that they want to suspend the hikes completely.

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“The break is not on the table right now, it’s not even part of the discussion,” Daly said. “Right now, the discussion is, understandably, about slowing the pace.”

St. Louis Fed President James Bullard made similar comments, predicting rates will rise at least 5% to 5.25%, and possibly as much as 7%.

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“In the past I’ve said 4.75% to 5%,” he told reporters on Thursday. “Based on this analysis today, I would say 5% to 5.25%. That’s a minimum level. Based on this analysis, that would put us at least in the zone.”

The Fed raised rates by 75 basis points in early November for the fourth consecutive meeting as it tries to bring inflation closer to its 2% target with the most aggressive tightening since the 1980s.

Some policymakers, including Daly, have indicated they prefer a 50 basis point hike in December, but Bullard said he would look to Chairman Jerome Powell to make the decision.

Traders generally expect the Fed to approve a smaller half-point rate hike at the end of a two-day meeting on December 14, although 20% still expect another 75% increase. basis points.

Federal Reserve Governor Christopher Waller warned earlier this week that a smaller rate hike does not mean officials are close to pausing.

“These rates are going to stay – keep going up – and they’re going to stay high for a while until we see this inflation getting closer to our target,” Waller said Monday at a UBS Group AG conference in Australia. “We still have a long way to go. It’s not going to end at the next meeting or the next two.”

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Fed officials’ comments echoed those of Powell earlier this month. Powell struck a hawkish tone at his news conference after the Nov. 2 meeting after Wall Street interpreted a new line in the Fed’s updated statement to mean the central bank was considering slowing its aggressive upward trajectory. rates at future meetings.

“Let me say this,” Powell told reporters. “It’s very premature to think about pausing. When people hear lags, they think about pauses. It’s very premature, in my opinion, to talk about pausing our rate hikes. We have a ways to go.”