Home » The Fed Wants to Quash Inflation. But Can It Do It More Gently?

The Fed Wants to Quash Inflation. But Can It Do It More Gently?

by Ronaldo Derric
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The Federal Reserve has hiked rates five times this year in an attempt to stem the worst inflation in 40 years, the past three being particularly rapid. This has led Wall Street and policymakers to ponder when the Fed will start to slow down.

Fed Chairman Jerome H. Powell has suggested a more gradual move would be appropriate at some point in the future, but did not give a date for when that would begin. One of its governors, Lisa D. Cook, echoed that stance, saying that the central bank will “at some point” slow the pace of rate hikes while assessing the impact of cumulative tightening on the economy. will decide,” he said. and inflation. “

Based on central bank statements and economic forecasts, the market is betting big that the pace will not slow down until December. But the debate is starting to harden ahead of the central bank’s meeting in early November. I think we need to make more adjustments as we race to keep inflation under control.

San Francisco Federal Reserve Governor Mary C. Daly said she could endorse a 0.5-point move at next month’s central bank meeting. The move is less aggressive than the three-quarter point change the Fed has made at its last three meetings.

Daly has been less aggressive than most lawmakers, hoping for another 1 percentage point rate hike by the end of the year.

“I don’t think we need to signal that we’re resolute anymore,” Daley said in an interview with The New York Times this week. This data helps me decide if I’m in favor of 75 followed by 25 or 50 followed by 50.”

Fed President Christopher Waller said on Thursday that inflation was not shaping up the way he wanted “to support a slower pace of rate hikes” than the Fed had previously predicted, adding some more. argued that some data points were unlikely to change…his mind.

But he seemed to nod to the possibility of a heated debate at the Fed’s next meeting over whether it should raise rates by half a percentage point or by three-quarters of a percentage point.

Based on the Fed’s latest forecasts, “participants expected an additional 100 to 125 basis points of tightening by the end of the year. Or it means either 75 basis points in November.In December it was up 50 basis points,” Waller said. “I think we can have a very thoughtful discussion about the pace of tightening at our next meeting.”

A series of data are expected to be released by the Fed’s next meeting on November 1-2. The Fed will receive a new jobs report on Friday and new consumer price index data next week. Indicators of economic strength, including housing market information and retail data, also provide a window into whether growth is losing momentum in a way that price gains could slow.

Those numbers could bring officials closer to consensus or even divide them further. While Daley sounds receptive to an imminent slowdown as the Fed tries to balance the risk of cooling the economy sufficiently against the threat of excessive restraint, she has made monetary policy decisions at every central bank meeting. I’m one of 19 people to talk about. and seven governors. The president rotates and loses the vote, and she has no vote on monetary policy this year.

Some of Daly’s colleagues have suggested another big move is in order in November unless data show a notable improvement in inflation. Atlanta Federal Reserve Bank Governor Rafael Bostic expressed its opinionfor example.

“Inflation is still too high. To bring inflation down quickly, we need to move the policy stance into restrictive territory,” Bostic said Wednesday. Still, “if future data clearly show that inflation is starting to slow, it may be a reason to hold back on the 75 basis points increase implemented by the Committee at its most recent meeting,” he added.

Bostic said this week that the policy rate will rise to 4% to 4.5% by the end of the year.

And Richmond Federal Reserve Bank Governor Thomas Birkin said in an interview that while he has yet to decide what size moves are appropriate for November, investors risk getting too caught up in individual data points.

He said the situation hadn’t changed much since the Fed’s meeting in September: inflation was stubborn and widespread, supply chains were slow to recover and workers were still in short supply. The trajectory of , he said, is still “jumbled.”

Whether the Fed can achieve a soft landing is “not the question I’m focusing on. The question I’m focusing on is whether there’s a way to get inflation back on target,” Birkin said. Said. “Of course, doing it with minimal stress is a priority. But I think the goal is to keep inflation down.”

The Federal Reserve’s Cook said in a speech Thursday that he supports raising policy rates quickly when inflation is proving relentless.

“With risks to inflation forecasts tilting upwards, we believe policy decisions must be based on whether and when inflation actually falls in the data, not just the projections,” Cook said. ‘ said. “It is important to consider whether inflation dynamics may have changed sustainably, making our forecasts even more uncertain.”

The market is still betting heavily on November’s 3/4 point move. based on priceAfter that, we expect the Fed to slow rate hikes to 0.5 percentage points in December.

However, there are different stages of monetary tightening, and the current stage is likely to be more variable. Earlier this year, central banks attempted to raise interest rates from very low levels, but policymakers now believe they are crossing the line between policies that help the economy and those that hurt it. This is known as the “neutral” interest rate.

Fed officials are weighing more on upcoming data and making decisions on a meeting-by-meeting basis, as every move is a step to further constrain the economy. By the time it’s fully entrenched, you may find yourself overdoing it months or years later.

Until recently, central banks tried to deal with other problems. After Chairman Powell’s press conference in July, the market significantly lowered expectations of the Fed’s actions.

The central bank has responded strongly, making it clear that it plans to raise interest rates further and keep them at higher levels until it makes progress towards defeating inflation.

However, the market now expects the Fed to maintain its aggressive stance on economic forecasts. As a result, its powerful message may be on the verge of change, or at least unanimously unheard.

“I don’t think we need the resolute signal values ​​anymore,” Daley said this week. “If anything, you might want a data-dependent signal value.”

Still, that doesn’t mean the central bank would consider a moratorium, as some investors had hoped. Waller panned such an idea on Thursday.

“Recently, I’ve read speculation that financial stability concerns could cause the FOMC to delay rate hikes or stop them sooner than expected,” he said. “Let me be clear that this is not what I think, nor what I believe to be a highly probable development.”

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