Federal Reserve officials stressed the need to keep raising interest rates, including the potential for borrowing costs to peak at a higher level than previously expected amid ongoing price pressures.
Four policymakers speaking at separate events Wednesday delivered a similar message — welcoming a recent moderation in inflation while cautioning that the fight was not yet won.
Their hawkish comments, following remarks Tuesday by Chair Jerome Powell, come as investors reassess bets on how high the Fed will raise rates, with some wagering the peak could reach 6% following a red-hot January employment report. They currently stand at 4.6%.
“We need to attain a sufficiently restrictive stance of policy,” New York Fed President John Williams told a Wall Street Journal live event in New York. “We’re going to need to maintain that for a few years to make sure we get inflation to 2%.”
Policymakers increased their benchmark rate by a quarter percentage point to a range of 4.5% to 4.75% last week. The smaller move followed a half-point increase in December and four jumbo-sized 75 basis-point hikes prior to that.
Officials in December penciled in a median projection of 5.1% for rates this year, implying a couple more quarter-point hikes.
“That still seems a very reasonable view of what we’ll need to do this year in order to get supply and demand in balance and bring inflation down,” said Williams, who as vice chair of the Federal Open Market Committee ranks in Powell’s leadership team.
The Fed chair had said that rates need to keep rising to tame inflation and suggested they could go higher than expected if price pressures persist.
Bets on a more aggressive Fed have hardened since a much stronger than expected jobs report last week showed employers added more than half a million new jobs in January as unemployment fell to 3.4%, the lowest since 1969.
Meanwhile, inflation measured by the Fed’s favorite gauge has slowed to 5% in the 12 months through December, down from 7% in June but still well above policymakers’ 2% target.
“Though we have made progress reducing inflation, I want to be clear today that the job is not done,” Governor Christopher Waller told an audience at Arkansas State University in Jonesboro, Arkansas. “It might be a long fight, with interest rates higher for longer than some are currently expecting.”
Investors have lifted bets on peak rates to around 5.15%, which is close to the Fed’s most recent forecast, though several big wagers on rates getting to 6% have also been laid this week.
Waller forecasts growth will slow in the first quarter but stay positive, and he said the strong labor market, while a risk for prices, was also a source of economic support.
Speaking earlier Wednesday, Governor Lisa Cook said officials were committed to curbing inflation and further tightening was warranted, though she favored maintaining a gradual approach.
“We are not done yet with raising interest rates, and we will need to keep interest rates sufficiently restrictive,” she told an event in Washington. Moving in smaller steps “will give us time to evaluate the effects of our fast actions on the economy.”
That sentiment chimed with Minneapolis Fed President Neel Kashkari, an FOMC voter this year, who told the Boston Economic Club that rates will need to rise higher to combat the wage growth.
“There’s not yet much evidence, in my judgment, that the rate hikes that we’ve done so far are having much effect on the labor market,” he said. “We need to bring the labor market into balance so that tells me we need to do more.”
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