Hike rates

Fed officials united on need to raise rates, divided on how high to go – Reuters

The Federal Reserve must continue to raise borrowing costs to rein in high inflation, a series of U.S. central bank officials said on Thursday, even as they debated how quickly and how far to raise them.

St. Louis Fed President James Bullard said given the strength of the economy, he is currently tilting for a third consecutive 75 basis point interest rate hike in September to bring down inflation faster.

“I don’t really see why you want to extend interest rate hikes into next year,” Bullard told the Wall Street Journal, saying he would like to bring the benchmark overnight interest rate to Fed in a target range of 3.75% to 4.00% by the end of the year. The Fed’s key rate is currently between 2.25% and 2.50%.

Earlier on Thursday, San Francisco Fed President Mary Daly said a rate hike of 50 or 75 basis points next month would be a “reasonable” way to bring borrowing costs short. term to “a little above” 3% by the end of this year. , and on the way to a little higher in 2023.

The exact pace of rate hikes will depend on jobs data, which has shown rapid growth in recent months, and inflation, Daly told CNN International. Inflation, the Fed’s preferred measure, is more than three times higher than the central bank’s 2% target.

Fed minutes could point to rationale for scale of future rate hikes

And with the global economic slowdown acting as a headwind on U.S. growth, she said “we have to take that into account because we’re making sure we’re not overdoing politics.”

The views of the two Fed officials suggest a split within the Fed between those who want to push rates higher quickly and those who are more cautious because of the potential damage to the labor market and the risk of a hike. the US unemployment rate, now at 3.5%.

But Bullard and Daly made it clear that after rates hit a certain level, the Fed won’t be quick to cut them. Bullard said market expectations for rate cuts were “definitely premature.” Daly said she supports a “grow and sustain” strategy.

“The worst thing you can have as a business or a consumer is for rates to rise and then fall quickly…it causes a lot of caution and uncertainty,” Daly said.

“I think we don’t want to have this idea that we’re going to have this big bump-like rate trajectory where we’re going up very quickly this year and then coming down aggressively next year – that’s not what I think. .”

Speaking at a separate event, Kansas City Fed President Esther George said she and her colleagues would continue to debate how quickly to raise rates, but would not stop. not until they are “completely convinced” that inflation is falling.