By Ann Saphir
(Reuters) – Federal Reserve policymakers expressed relief on Thursday that price pressures were easing, paving the way for a possible slowdown in rate hikes , but they signaled that the U.S. central bank’s target interest rate could rise above 5% for some time despite market bets to the contrary.
There is fresh evidence that the Fed’s aggressive tightening last year is having the desired effect U.S. consumer prices fell in December for the first time in 2-1/2 years, according to government data on Thursday. Inflation slows.
In the months to December, the so-called core CPI rose 5.7%, the most since December Minimum increment 2021.
“It’s encouraging that we got some information today that is going in the right direction,” St. Louis Fed President James Bullard told an event organized by the Wisconsin Bankers Association Say.
Noting that inflation remains well above the Fed’s 2% target, Bullard reiterated his view that he would like to see the central bank’s policy rate, now at 4.14%-4.50% range, moving 5% north “ASAP”.
After that, he said, “We are effectively entering an era of higher nominal interest rates as we try to continue to put downward pressure on inflation.”
But Bullard did not dispute the possibility that the Fed may hike 25 bps at its January
meeting – meeting on Feb. 1, which will mark a half-percentage-point slowdown in December’s rate hike.
Noting that he likes the “early loading” policy and prefers not to delay raising rates, Bullard added that the strategy for raising rates is not important. The Fed’s policy rate is heavily betting to start raising rates to 25 percentage points from January 25 to February. 1 meeting and a pause of just under 5% for a rate cut later this year.
“Guide more cautiously”
Philadelphia Fed President Patrick Harker, speaking to a business group in Pennsylvania earlier Thursday, said he It is indeed appropriate to raise interest rates by 25 basis points now.
But he also said he believed the Fed’s policy rate would need to be above 5% to curb inflation, which is almost three times the target by the central bank’s preferred measure and would remain at This level some time.
The minutes of the Federal Reserve’s December 13- meeting showed that at that time No central bank policymaker expects all 2023 rate cuts, and Atlanta Fed President Raphael Bostic said earlier this week that his base case is not next year either.
Richmond Fed President Tom Barkin said on Thursday that inflation over the past three months has moved in the “right direction” and allowed the Fed to “Guide more carefully”.
Barkin, speaking at an event organized by the Virginia Bankers Association and the Virginia Chamber of Commerce, did not say whether he supported a smaller rate hike in January 31- February 1st meeting, or how high he expects rates to go.
But Fed policymakers have repeatedly said they want to avoid a repeat of the 50 where the central bank raises rates and then cuts when inflation appears to be fading, only Borrowing costs have to be raised even higher to normalize price pressures.
The Fed finally pushed up borrowing costs while US unemployment hit double digits in the meantime before halting the price spiral.
Fed policy makers said they do not expect the unemployment rate, currently at 3.5%, to rise by more than a percentage point, the current focus of the fight against inflation.
