The Fed “has come an appreciable way in bringing policy from a very accommodative stance to a restrictive one, but I believe we have more work to do,” Cleveland Fed President Loretta Mester said in a virtual speech to a Global Interdependence Center conference. “The incoming data have not changed my view that we will need to bring the fed funds rate above 5% and hold it there for some time” in a bid to get inflation back to the central bank’s 2% target.
At its Jan. 31-Feb. 1 policy meeting, the Fed opted to moderate the pace of what had been a torrid barrage of rate hikes and lifted its benchmark overnight interest rate by a quarter of a percentage point to the 4.50%-4.75% range. The central bank also signaled more rate hikes are coming to help lower overly high inflation levels back to the 2% target.
But in the wake of that gathering, data showed unexpectedly strong job gains for January that raised questions as to whether the labor market has slowed to the degree Fed officials believe is necessary. Earlier this week, the government reported the consumer price index in January did not moderate as much as economists had forecast, keeping pressure on the central bank to act further to tighten monetary policy.
Both policymakers have on balance been on the more hawkish side of the policy debate. Bullard was also one of the Fed’s earliest advocates for rolling back the massive amount of stimulus the central bank pumped into the economy to tackle the impact of the COVID pandemic.
Mester told reporters after her remarks that she’s not ready to say how big a rate hike the central bank should deliver at its March 21-22 meeting. Futures markets are currently eyeing another quarter-percentage-point increase on March 22 and are split as to whether the federal funds rate will hit the 5.00%-5.25% or 5.25%-5.50% range by June.
In December, Fed policymakers penciled in a 5.1% stopping point for that rate this year. The central bank is due to release updated forecasts at next month’s meeting, amid expectations the projected rate will climb to a higher level.
In comments on Tuesday, New York Fed President John Williams, who is vice chair of the FOMC, said it appeared reasonable to him for the federal funds rate to be between 5.00% and 5.50% by the end of this year.
Source: www.reuters.com
