Two Federal Reserve Officials See Interest Rates Topping 5%

(Bloomberg). Two Federal Reserve officials stated Monday that the central bank would likely have to raise interest rates by more than 5% before holding off or pausing for a while.

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“We are just going to have to hold our resolve,” Raphael Bostic was the president of Atlanta Fed. He stated that the Fed was committed in tackling high inflation, which warrants raising interest rate to a 5%-5.25% range to drive out excess demand.

He later told reporters that the case for reducing the size of the Fed’s rate hikes to 25 basis points would be boosted if data due Thursday showed consumer prices cooling, following evidence that wage gains have also slowed.

Mary Daly, President of San Francisco Fed, spoke in a livestreamed interview with The Wall Street Journal. She also stated that she expected the central bank’s interest rates to rise to around 5%. However, the final level will depend on the incoming inflation data.

Bostic and Daly are not eligible to vote on this year’s policy.

The policymakers will meet at the end the month to decide whether to raise rates by 50 basis point for the second consecutive time or to slow down to a quarter of a percent.

“Doing it in more gradual steps does give you the ability to respond to incoming information,” Daly agreed. She stressed that it’s too early to “declare victory” Over persistent inflation

The Fed slowed its rate-hike pace at its December meeting while emphasizing that additional tightening is coming and that borrowing costs will likely remain at high levels for some time in order to bring inflation down to the central bank’s 2% target. Bostic, Daly and others did not vote for policy this year.

Daly said last month that she believes rates will be more restrictive than the markets see. She stated that holding the federal funds rates at their peak for 11 consecutive months is an acceptable policy. “reasonable starting point.”

Bostic answered the moderator’s question about how long he has seen rates rise above 5% for: “Three words: a long time.”

“I am not a pivot guy. I think we should pause and hold there, and let the policy work,” He stated.

After his speech, he told reporters that his forecast had rates held through next year to avoid inflation. “bouncing” Fed policy.

Fed officials are scheduled to meet Jan. 31-February 1 and will either increase their 50-basis rate by 5% or slow it down to a quarter percent point. But traders think the latter is more likely. Friday’s report revealed that US workers were hiring strong in December, while wages rose slightly.

Bostic stated that if Thursday’s consumer price index data shows inflation pressures decreasing, it could support the case for reducing rate increases to 25 basis point.

“If the CPI comes in showing the same kind of trending that we saw in the jobs number, that will make me have to take 25 more seriously, and to move in that direction,” He stated. “But we still have some time to go before that.”

Bloomberg polled economists to predict that CPI will fall to 6.5% by December, from 7.1% the month prior.

(Updates with Bostic remarks on reporters in last paragraph.

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