Top officials at the Federal Reserve have backed a slower future pace of interest rate increases, suggesting the recent series of 0.75 percentage point moves could be drawing to a close even as the US central bank targets a higher endpoint for its monetary tightening campaign.
Speaking just days after the Fed delivered its fourth consecutive supersized rise, presidents at regional bank branches in Boston and Richmond underscored that its efforts to tame sky-high inflation are entering a new phase.
Given the benchmark policy rate — now in a range between 3.75 per cent and 4 per cent — is now at a level that is more actively restricting the economy, both officials indicated their support for a slower pace of rises going forward.
“I think you could credibly say we have our foot on the brake, and I think when you get your foot on the brake, you just think about steering in a very different way,” Richmond Fed president Thomas Barkin said in an interview with CNBC.
“Sometimes you act a little bit more deliberatively, and I’m ready to do that. And I think the implication of that is probably a slower pace of rate increases . . . and potentially a higher endpoint.”
Also on Friday, Susan Collins of the Boston Fed said it is “time to shift focus” from the pace of rate rises to how high they ultimately need to go. As such, “smaller increments will often be appropriate”.
The comments align with the message Jay Powell sought to deliver on Wednesday at a press conference after the latest decision. Emphasising how far rates have risen this year and the lagged effects of policy adjustments on the real economy, the Fed chair set the stage for a downshift in the pace of increases but a higher so-called terminal rate.
A slower pace could come as early as the December meeting or be pushed into early next year depending on incoming data.
Monthly jobs growth in the world’s largest economy remains robust, according to new data released on Friday, which showed 261,000 positions added in October despite the unemployment rate rising to 3.7 per cent. Wages once again firmed and the supply of workers remained subdued, suggesting the labour market continues to be very tight.
Collins and Barkin indicated the latest report did not alter their stance about the need to slow the pace of increases, but underscored there is great uncertainty about how far the Fed will need to lift borrowing costs in order to see inflation drop back to the 2 per cent target.
Collins said it is “premature to signal how high rates should go”. Barkin said it is “entirely conceivable” the fed funds will need to eventually breach 5 per cent. Traders in fed funds futures markets on Friday priced in the “terminal” rate topping out at 5.25 per cent by June of next year.
Source: Financial Times
