Fed Officials Pointing Toward Additional Interest Rates Hikes to Beat Inflation

By Steven K. Beckner

(MaceNews) – Although the Federal Reserve declined to raise interest rates last week, a number of Fed officials have indicated a willingness to do so before year’s end.

With an abundance of price, job and other economic data scheduled for release by the Dec. 8-9 meeting of the Federal Reserve’s policymaking Federal Open Market Committee, officials anticipate that inflation will stay unacceptably high while economic growth and employment remain strong in keeping with the Fed’s maximum employment mandate.

So, Fed watchers and financial markets more generally consider a Dec. 9 rate hike almost a foregone conclusion. Friday morning’s stronger than expected non-farm payroll gains add to that perception.

In recent days, Fed officials have cemented that sentiment in remarks since the late October FOMC meeting.

For instance, New York Federal Reserve Bank President John Williams declared Friday morning that inflation has been too high for too long” added that it is “absolutely essential” to bring it down to 2% in “a timely manner.”

The day before, Cleveland Federal Reserve Bank President Beth Hammack asserted that the Fed “will need to move to a restrictive stance to bring inflation back to 2% in a timely manner.”

Hammack, who was joined by Gov. Lisa Cook in dissenting against the FOMC’s stand pat posture last Wednesday, voted to raise rates because “inflation has now been above our goal for nearly six years, and the pressures I’m seeing appear to be relatively broad based, reflecting both supply and demand.”

Richmond Fed President Tom Barkin also urged higher rates Thursday. Calling current monetary policy “somewhat accommodative” and pointing to “historic(ally) low unemployment” and “far too high” inflation,” he said “the policy direction we need to take from here is quite clear” – higher interest rates.

But Barkin expressed his preference for “a gradual approach” to monetary tightening, given the high degree of uncertainty.

In much the same vein, Dallas Fed President Lorie Logan reiterated her support for higher rates Thursday evening.

After raising the federal funds rate by 25 basis points on Sept. 16 to a 3.75-4.0% target range, the FOMC held that policy rate steady last Wednesday. However, FOMC participants projected another 25 basis point hike by the end of the year in the September Summary of Economic Projections, and officials have done nothing to disabuse market expectations that the funds rate will soon move up to a 4.0-4.25% range.

Since taking over from Jerome Powell as Fed chair in May, Kevin Warsh has repeatedly said he opposes using so-called “forward guidance” on the path of interest rates. Nevertheless, the FOMC’s latest policy statement seemed to dabble in the use of phrasing to send a policy signal.

“The accumulation of more information will help the Committee determine the policy stance appropriate to ensure a timely return of inflation to the Committee’s 2% goal,” the reworded FOMC statement said. “The Committee will deliver price stability.”

Elaborating in his post-FOMC press conference, Warsh said, “While these uncertainties are real, there’s no lack of clarity in our purpose at the Fed ….. We’ve made clear our readiness to act as circumstances require, and we have shown our willingness to act. The information we receive over the coming period will help us determine where we want policy to be,” he added.

Since “removing a dose of accommodation” in September, Warsh said he has been gratified that his “new monetary medicine is starting to work. Pointing to reduced measures of inflation expectations, he said, “I feel good about those signposts.” but he said “no firm conclusions can be drawn” on what more the FOMC might need to do.

Looking ahead to the Dec. 8-9 FOMC meeting, he said he and his colleagues face an “information rich” environment and are “keen to take notice of it.”

“So, in this coming period, what do I think we’re going to be able to do?” Warsh asked. “We’re going to be able to figure out what’s the appropriate protocol as part of this package that we started to deliver five months ago, to deliver price stability. I’m encouraged by the progress we’ve made in a short period of time….”

Willliams, a top Warsh lieutenant, was emphatic about need to combat inflation at an European Central Bank conference in ⁠Frankfurt.

“Inflation is absolutely ⁠too high,” the FOMC vice chairman said. “It’s been too high for too long..**”

Williams added that “it’s absolutely essential that we bring inflation back to our 2% target in a timely manner and a sustained basis.” As he’s done before, Williams contended that inflation expectations “remain well anchored,”

Hammack, who dissented against delaying further rate hikes, laid out an even stronger case in remarks to a conference in Zurich where the role of the U.S. dolllar was the main topic.

“Delivering on our commitments is an important way the Federal Reserve helps the dollar remain a reliable store of value and that Americans can continue to reap the benefits of its global status,” she said. “This includes bringing inflation back to our 2% goal, sustaining a healthy labor market, and supporting a resilient financial system.”

Hammack said, “high inflation erodes the purchasing power of dollar cash holdings and nominal bonds.”

Inflation “has moved in the wrong direction,” she said, noting that headline PCE inflation was 3.6% in September, and core PCE inflation was 3.1%.  percent. Those readings are well above our 2 percent goal and higher than at the start of this year. And she suggested that inflation will remain excessive without additional monetary tightening.

“Inflation has now been above our goal for nearly six years, and the pressures I’m seeing appear to be relatively broad based, reflecting both supply and demand,” said Hammack. “I expect that monetary policy will need to move to a restrictive stance to bring inflation back to 2% in a timely manner.”

She said she would “prefer getting to that stance through more frequent smaller adjustments when possible, something which would be less disruptive to households, businesses, and financial markets. This strategy would also reduce the risk of having policy fall behind where it needs to be and an inflationary mindset take hold.”

Barkin chimed in Thursday. With unemployment “close to a historic low,” and inflation “far too high,” he said “the policy direction we need to take from here is quite clear.”

Even after last week’s rate hike, he said monetary policy remains “somewhat accommodative,”

But Barkin said, “the issue is the pace of rate hikes,” adding, “Given uncertainty in the global economy and economic data yet to be released, a gradual approach is reasonable.”

In other comments since the FOMC meeting, Dallas Fed President  Logan said last Friday that “the FOMC needs to implement at least two more 25-basis-point rate increases. After that, it would make sense in my view to pause and examine economic and financial developments to determine what further action.”

Logan said inflation data “show broad price pressures across many goods and services, not just those affected by temporary factors such as tariffs and the energy shock. Other measures similarly indicate inflation is trending meaningfully higher than the FOMC’s 2 percent target. may be appropriate. The end goal should be to make policy

Similarly, St. Louis Fed President Alberto Musalem warned that inflation risks are “skewed towards persistent above-target inflation.”

“Under one scenario, which I view as the more likely, inflation persists meaningfully above 2% absent further removal of monetary policy accommodation….,” he said. “I judge that additional firming of monetary policy will be necessary, and soon.”