Fed officials see US interest rates rising further

John C. Williams, President and Chief Executive Officer of the Federal Reserve Bank of New York, speaks at the Economic Club of New York in the Manhattan borough of New York, U.S., March 6, 2019. REUTERS/Lucas jackson

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Aug 30 (Reuters) – U.S. Federal Reserve officials on Tuesday reiterated support for further interest rate hikes to curb inflation, with the influential New York Fed chief saying the central bank is likely to have to raise its key rate “a little above”. 3.5% and maintain it until the end of 2023.

“I see we have to kind of maintain a policy stance – bring inflation down, align demand and supply – it’s going to take longer, it’s going to continue until next year,” the official said. New York Fed chief John Williams to the Wall Street Journal. “Based on what I see in the inflation data and what I see in the economy, it will be some time before I expect to see downward rate adjustments.”

In March, the Fed embarked on what became the biggest rate hike since the 1980s, and Fed Chairman Jerome Powell made it clear last week that he and his fellow policy makers monetary were prepared to raise borrowing costs as high as necessary to restrain growth and reduce inflation which is currently running at more than three times the Fed’s 2% target.

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This, he said, will likely mean a weaker labor market and hardship for households and businesses; but allowing inflation to remain high would cause even greater damage, he said. Read more

Williams, who as vice chairman of the Fed’s rate-setting committee plays a key role in directing monetary policy, said the central bank’s decision to make a third straight rate hike 75 basis points next month or a smaller half-point hike will depend on incoming data, which includes Friday’s monthly jobs report and the Consumer Price Index reading a few days later. only before the September 20-21 meeting.

But the September decision will also depend, Williams said, on how policymakers feel about where they think interest rates will need to be by the end of the year.

“If, based on the data, it’s clear that we need to raise interest rates significantly by the end of the year, that obviously informs a decision at any given meeting,” Williams said. “We’re going to have to have a restrictive policy for a while – it’s not something we’re going to do for a very short period of time and then change course; it’s really more about putting the policies in the right place to get inflation down and keeping it in that position” to achieve the Fed’s 2% inflation target.

The Fed’s current target range for the benchmark federal funds rate is 2.25-2.50%.

In June, the last time the central bank released a summary of policymakers’ expectations for the path of rates, US central bankers saw rates climb to 3.4% by the end of the year.

Financial markets anticipate a stronger rise. Fed policy futures reflect traders’ bets that rates will rise another 1.5 percentage points by the end of the year. There are three more policy meetings this year, including the one next month.

“I don’t think we’re done tightening. Inflation remains too high,” Atlanta Fed Chairman Raphael Bostic wrote in an essay posted Tuesday on the regional bank’s website. “Having said that, the incoming data – if it clearly shows that inflation has started to slow – might give us reason to backtrack… We’ll have to see how that data comes in.”

Inflation by the Fed’s preferred measure slowed to 6.3% in July from 6.8% in June, but price pressures remain “stubbornly broad-based”, Bostic said.

Other data shows key segments of the economy remain stretched – including data released on Tuesday showing job vacancies remained high through July, a possible indication of continued wage pressures

Bostic called the big picture “fuzzy” and said that while focusing on the path of inflation, he was also sensitive to the fact that overly aggressive action to raise interest rates also carries risks. risks.

“Acting too aggressively or too timidly has downsides,” Bostic wrote, with entrenched inflation looming if the Fed doesn’t pull it out of the economy, and loss of growth and rising unemployment resulting from a “severe political tightening”.

Richmond Fed Chairman Thomas Barkin is clear that the Fed needs to raise interest rates, although the exact amount next month will depend on upcoming jobs and inflation reports. “I’m not going to prejudge,” Barkin told Yahoo Finance, adding that the Fed needed to push rates “into tight territory” to bring inflation down.

(This story refiles to correct a typographical error in the last paragraph)

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Reporting by Ann Saphir, Lindsay Dunsmuir and Howard Schneider; Editing by Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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