Fed Could Be Pushed by Overheated Wages to Higher Peak Rates
Federal Reserve officials have enough worrisome inflation data to consider raising interest rates to a higher peak than investors expect and potentially follow the half-point hike they’ve signaled this month with the same again in February.
Monthly wages rose at the strongest pace since January and US employment surged more than forecast last month, a report showed Friday. That will concern Fed Chairman Jerome Powell, who this week cautioned that slacker job-market conditions and less-lofty earnings growth were needed to cool an inflation rate near a 40-year high.
Powell and his colleagues, now in their pre-meeting blackout, have strongly suggested they would downshift to a half-point move at their Dec. 13-14 gathering, after four straight 75 basis-point increases. He’s also said they likely will need higher rates than they thought in September, when the median forecast saw them at 4.6% next year from a current target range of 3.75% to 4%.
“Powell has suggested that we’re not in a wage-growth spiral yet, but that risk is still there,” said Rhea Thomas, senior economist at Wilmington Trust Co. “This keeps in play this idea that they may have to raise the peak rate and potentially keep it in place for longer.”
Bets on a downshift to a half-point hike this month were intact after the employment report and investors saw the likelihood of the same again at the Fed’s Jan. 31-Feb. 1 meeting as roughly balanced. Pricing in futures markets shows rates peaking around 4.9% next year.