NEW YORK/SAN FRANCISCO, Dec 16 (Reuters) – Federal Reserve policymakers may need to lift U.S. borrowing costs above the peak 5.1% they penciled in just this week, and keep them there perhaps into 2024 to squeeze high inflation out of the economy, three of them signaled on Friday. The hawkish messages, delivered in separate appearances by New York Fed President John Williams, San Francisco Fed President Mary Daly, and Cleveland Fed President Loretta Mester, underscore the U.S. central bank’s determination to do what it takes to ease price pressures that erode wages and strain household budgets, despite what analysts say could be a million or more jobs lost in the process. They also stand in stark contrast with expectations expressed in financial markets.
New York Fed chief Williams said he’s not expecting a recession, but told Bloomberg TV “we’re going to have to do what’s necessary” to get inflation back to the Fed’s 2% target, adding that the peak rate “could be higher than what we’ve written down.”
The Fed this year has raised rates from near zero in March to a range of 4.25%-4.5% in the steepest round of rate hikes since the 1980s, the last time it battled fast-rising prices. Inflation by the Fed’s preferred measure is currently running at 6%, three times its 2% target Earlier this week as policymakers delivered the latest rate hike they also published projections that signaled nearly all of them see the need to lift rates still further, to at least a 5%-5.25% range, in coming months. On Friday, the broad S&P 500 stock-market index closed down about 2% on the week as the Fed’s more hawkish stance sunk in.
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“I don’t quite know why markets are so optimistic about inflation,” San Francisco Fed’s Daly said, adding that it may be because markets are pricing in an ideal scenario. Central bankers, she said, are positioning policy for what she said were still “upside” risks to the inflation outlook.
- “I think 11 months is a starting point, is a reasonable starting point. But I’m prepared to do more if more is required,” Daly said, adding that exactly how long will depend on the data. She said her own forecast for rates is in line with the 5.1% peak rate expected by the majority of her colleagues..
- The New York Fed said its internal economic model sees a 0.3% decline in overall activity next year and flat growth in 2024, with a return to positive growth the year after.
Central bankers have become increasingly blunt that bringing inflation down will require a labor market slowdown that they will not try to offset with interest-rate cuts until they are confident they have beaten back inflation.
NN: Its a horror show to me. The FED is saying FUCK the masses. We are shutting the economy down not matter what. It would be wise to pay attention to this Juggernaut who has the power to destroy business, real estate, banks and the economy at large, Any market that is credit driven should be scared… Its time to head for the hills and hide in your debt free bomb shelter