Fed officials debate between more hikes or longer after January inflation

The authorities of the Federal Reserve of USA They were divided on Wednesday on whether recent high inflation data and a stubbornly hot job market will call for further tightening of interest rates, or simply keeping monetary policy tighter for longer.

At a business event, Minneapolis Fed President Neel Kashkari said he was leaning “to promote my policy” after a recent government report showed that the Fed’s preferred inflation rate accelerated in January to an annual rate of 5.4%, more than double the Fed’s 2% target and slightly faster than the previous month.

Kashkari, who votes on the Fed’s currency committee this year, said he had not yet made a final decision on a new projection for the federal funds target rate.

But “At the moment (…) I am inclined to continue going higher”beyond the level of 5.4% that he previously considered adequate to reduce inflation.

Fed policymakers will present new projections at a meeting in three weeks, and analysts and investors expect the average rate officials anticipate for the end of 2023 to move perhaps a quarter point above the 5.1% they forecast in December. .

Federal Reserve policy rate futures traders considered the odds of the interest rate being between 5.5% and 5.75% in September to be about the same as it being between 5.25% and 5.5%.

The federal funds rate currently hovers between 4.5% and 4.75%, after a series of hikes last year from near zero. The authorities hope to add another quarter of a percentage point at their next meeting.

The rise in inflation in January, however, has not provoked a unanimous reaction.

Of those who have spoken publicly since the new inflation data came out on Friday, Kashkari is the first to suggest that a higher interest rate might be warranted.

Atlanta Fed President Raphael Bostic said in an essay published Wednesday that he continues to think a federal funds rate in the range of 5% to 5.25% would be appropriate, a view he has held despite last week’s high inflation and an unexpectedly strong January jobs report.

However, he stated that the interest rate should be kept at that level “well into 2024″and that the Federal Reserve agrees not to “alter course” until it is clear that inflation is subsiding.

The goal, Bostic said, is to achieve a “delicate balance” raise the target federal funds rate to a level the economy can absorb without a dramatic recession, but also slow demand and curb inflation over time.

“This will allow tighter policy to filter through the economy and ultimately better balance aggregate supply and aggregate demand,” said Bostic, who has no vote this year on the Federal Reserve’s interest rate policy.

Source: Reuters