Is the Fed preparing to focus on raising interest rates? Not so fast, policymakers say

Federal Reserve policymakers poured cold water on investors’ hopes of a pause in interest rate increases while stressing the need to crush runaway inflation and warning of the economic pain to come.

In speeches this week, central bank officials reiterated their determination to sufficiently tighten monetary policy, and stressed their commitment to containing rising consumer prices.

San Francisco Fed President Mary Daley said Wednesday in an interview with CNBC that she sees interest rates peaking in the 4.75% to 5.25% range. With the benchmark federal funds rate now at 3.75%-4% – already in restricted territory – that would mean another 125 basis point increase.

Although policymakers conceded that it may be time to start slowing the pace of interest rate increases after a government report earlier this month showed inflation moderated in October, they stressed that did not mean they wanted to halt the increases entirely.

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James Bullard, President and CEO of the Federal Reserve Bank of St. Louis, speaks during the National Association for Business Economics (NABE) Economic Policy Conference in Washington, D.C., February 26, 2018. (Joshua Roberts/Bloomberg via Getty Images/Getty Images)

“Pause is off the table now, it’s not even part of the discussion,” Daley said. “At the moment, the discussion is, rightly, at a slower pace.”

St. Louis Federal Reserve Bank President James Bullard made similar remarks, expecting rates to rise at least 5% to 5.25%, possibly as high as 7%.

The Reserve Bank raised interest rates by 75 basis points for the fourth straight meeting

“In the past, I said 4.75% versus 5%,” he told reporters on Thursday. “Based on that analysis today, I would say 5% to 5.25%. That’s the bottom line. According to that analysis, that should at least get us into the zone.”

The Fed raised interest rates by 75 basis points at the start of November for the fourth consecutive meeting as it tries to battle inflation near its 2% target with the most aggressive tightening since the 1980s.

Economic reports due this week will help the Fed balance not only higher interest rates, but also how much to raise them.

US Federal Reserve Chairman Jerome Powell (Liu Ji/Xinhua via Getty Images/Getty Images)

Some policymakers, including Daley, have indicated they favor a 50 basis point increase in December, but Bullard said he will look to Chairman Jerome Powell to make the decision.

Traders widely expect the Fed to agree to a half-point rate hike at the close of the two-day meeting on Dec. 14, although 20% still expect another large-scale increase of 75bp.

Federal Reserve Chairman Christopher Waller warned earlier this week that a smaller rate hike does not mean officials are about to pause.

“These rates are going to stay — they’ll continue to go up — and they’ll stay high for a while until we see that inflation get close to our target,” Waller said Monday at the UBS Group AG conference in Australia. “We still have a ways to go. This doesn’t end in the next meeting or two.”

Federal Reserve

Marriner S. Eccles Federal Reserve Building in Washington, D.C., July 6, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

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The comments of the Fed officials were similar to those made by Powell earlier this month. Powell struck a hawkish tone during his post-meeting press conference on November 2 after Wall Street interpreted a new line in the updated Fed statement to mean that the central bank was considering slowing its rate hike path at upcoming meetings.

“Let me just say this,” Powell told reporters. “It is too early to consider a pause. When people hear about delays, they think of stopping. It’s too early, in my opinion, to talk about pausing our price increases. We have a way to cut it.”

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