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Michael S. Derby and Ann Safire NEW YORK/SAN FRANCISCO (Reuters) – Fed expected to On Friday it will be necessary to push interest rates higher and keep them higher than previously expected after data showed a key inflation gauge accelerated last month.
Even so, Fed policy makers in speeches on Friday did not push for a return to the aggressive action they had in raising rates last year, suggesting that For now, central bankers are content to stick to a path of gradual tightening despite signs that inflation has not cooled as much as they had hoped.
The Commerce Department reported that the personal consumption expenditures price index, which is the Fed’s measure of its 2% inflation target, rose 5.4% year-over-year last month, up 5.4% from a year earlier. The annual growth rate was revised up to 5.3 percent in December.
Underlying “core” inflation climbed a higher-than-expected 4.7% from a year earlier, compared with an upwardly revised 4.6% in December.
Cleveland Fed President Loretta Mester told Reuters on the sidelines of a meeting that the report “shows yet again that the inflationary impulse And price pressures are still with us” in New York. “The Fed will need to do more to get inflation to 2% on a sustainable downward path.”
She was one of a handful of Fed policymakers who argued in December they needed to raise policy rates to 5.4% to stem inflation, while Most people think 5.1% will be enough. Earlier on Friday, she said she had not changed her view.
Likewise, other Fed policymakers who did not speak on Friday, including the usual hawkish Gov. Governor James Bullard focused on the latest inflation data, arguing for a stronger Fed response. Boston Fed President Susan Collins said more rate hikes were needed, but did not specify a specific stopping point.
The implied yield on the fed funds futures contract rose on Friday as traders firmed up their bets for at least three more rate hikes in June , which would push the U.S. central bank’s benchmark overnight rate to 5. %-5.10% range from current 4.%-4.25% scope.
Now the price is about 10% probability to have a higher stop point from about
% before PCE data release.
Traders have largely erased consensus bets on a Fed rate cut by the end of the year, with the Fed policy rate at 5 by the end of the year. %.
“There are inflationary pressures in the economy, inflation levels are still too high, more monetary policy is needed to ease inflation, Mester said.
Economic data in recent weeks have been generally stronger than expected, job growth remains strong and wages have outpaced Fed governors Philip Jefferson said Friday that inflation is consistent back to 2% in time.
The report showed that inflation did not cool as much in November and December as had been thought, with spending rising more than expected in January despite a rise in the saving rate.
All in all, economic data may cast doubt on Fed Chairman Jerome Powell’s assessment this month that a “disinflationary process” had begun, a view that seemed to justify the central bank’s decision in January – Feb. at 30.
