Cleveland Fed President Loretta Mester asserted on Thursday that the central banking system must continue its tightening policy until upside inflation risks are gone. Providing remarks following the latest CPI data, which showed annual US inflation declined to 7.7% last month, Mester argued that the Federal Reserve’s key risk remains not hiking rates enough. It is currently unclear how high the rates will have to go before inflation abates.
However, Mester noted it would take time and possibly turn economic growth into negative territory. Nevertheless, the Fed official asserted inflation will reach the 2% target in 2025 as planned.
The Fed introduced several 75-basis-point rate hikes over the previous months, prompting inflation to go down for the fourth consecutive month in today’s report. Following the release, multiple senior Fed officials agreed that the central bank could slow down the pace of rate hikes from the December FOMC meeting.
Fed’s Kashkari: Talk of pivot ‘entirely premature’
President of the Federal Reserve Bank of Minneapolis Neel Kashkari said that it is “entirely premature” to discuss a pivot in the Fed’s current monetary policy.
He stated that the central bank’s dual mandate of keeping inflation at 2% and maximum employment will come into tension “at some point,” but that moment is a “long long long way” away.
Kashkari insisted that wages are not driving inflation but are rather trying to catch up to it. He expressed regret the Fed did not start raising interest rates sooner, but noted that inflation would still be high due to external factors. Commenting on digital currencies, he said the cryptocurrency market is “chaos” and “99% noise and confusion,” adding that he is “deeply skeptical” of a potential United States central bank digital currency (CBDC).
Fed’s Harker: Point of rate slowdown close
Federal Reserve Bank of Philadelphia President and Chief Executive Officer Patrick Harker said on Thursday that the Fed is nearing a point where a slowdown in interest rate hikes would be appropriate. Speaking at a virtual event, Harker noted that “in the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.” Harker concluded by saying that the central bank wants to “see inflation coming down steadily and consistently,” subsiding across “a wide array” of sectors and that “a rate hike of 50 basis points would still be significant.”
Fed’s George supports slowing pace of rate hikes
Kansas City Federal Reserve President Esther George confirmed her support for decelerating the pace of interest rate hikes in the coming months due to inflation data declining for the fourth month in a row. George called for a “more measured” approach following the release of the October CPI data for the United States, which showed annual inflation dropping to less-than-expected 7.7%. Commenting on the outlook, George argued that the dynamics of the US economy couldn’t be predetermined. The Fed introduced multiple 75-basis-point rate hikes in the past FOMC monetary policy decisions. However, the latest expectations lean toward a smaller increase at the upcoming meeting scheduled for December 13-14. This decision was also hinted at by Chair Jerome Powell earlier this month. The dollar extended losses versus the euro and the pound at 2:09 pm ET following the CPI report, trading at levels last seen in mid-September.