Fed officials at Jackson Hole push for more rate hikes

The US Federal Reserve is raising interest rates rapidly to curb the hottest price pressures in 40 years. PHOTO: BLOOMBERG

JACKSON HOLE, WYOMING (BLOOMBERG) - US central bankers stressed the need to keep raising interest rates and St Louis Fed chief James Bullard said officials should act quickly and lift their policy benchmark to a range of 3.75 per cent to 4 per cent by year end.

"I like the front-loading. I like the idea that you get the rate increases in earlier rather than later," he told CNBC on Thursday (Aug 25) in Jackson Hole, Wyoming.

"You show you are serious about inflation fighting and you want to get up to the level that will put downward pressure on inflation. We are at 2.33 per cent right now. That is not high enough," he said, referring to the current effective level of the benchmark federal funds rate.

Other officials speaking at the Fed's policy retreat reserved judgment on how big they should go at next month's meeting, but agreed that rates need to rise.

Kansas City Fed president Esther George, who hosts the annual forum, said the Fed has not yet raised the rates to levels that weigh on the economy and may have to take them above 4 per cent for a time.

"It is very important that we are clear in our communication about the destination we are headed," she told Bloomberg Television.

"We have to get interest rates higher to slow down demand and bring inflation back to our target," she said.

Both officials vote on monetary policy this year and their comments helped set the stage for a busy two days of Fed speakers, who will be headlined on Friday by chair Jerome Powell with a speech likely to restate his resolve to keep tightening monetary policy to fight inflation.

The United States central bank is raising interest rates rapidly to curb the hottest price pressures in 40 years. US consumer prices rose 8.5 per cent in the 12 months to July, according to Labour Department data. The Fed aims at a different gauge produced by the Commerce Department, called the personal consumption expenditures price index, which rose 6.8 per cent in the year to June.

Asked how high the Fed should push borrowing costs, Ms George said there was "more room to go" and pushed back against bets in financial markets that the central bank would begin cutting rates next year.

"I think we will have to hold - it could be over 4 per cent. I don't think that is out of the question," she said. "You won't know that, I think, until you begin to watch the data signs."

Mr Bullard said he had deliberately not talked much about the outlook for rates in 2023 because it is such a "volatile" environment, but cautioned that the Fed has to push harder on the policy brake than investors expect.

"A baseline would be that... inflation would be more persistent than what many on Wall Street expect and that is going to be higher for longer," he said. "That is a risk that is underpriced in the markets today."

50 v 75

Fed officials hiked by 75 basis points at each of their last two meetings and have said the same again could be on the table when they gather next month, depending on the data. They get fresh reads on consumer prices and employment between now and then.

Philadelphia Fed president Patrick Harker, speaking in an interview with CNBC, also said rates needed to be lifted into restrictive territory.

"There are glimmers of hope on inflation. I just emphasise glimmer - our job is no way done. So we can take that as a positive, but we need to keep acting to raise rates to get inflation under control," he said.

He, too, struck a measured tone, playing down suggestions that if the Fed moved only by a half point next month, that was somehow dovish.

"Since 1983, the Fed has raised rates 86 times - 75 of those were under 50 basis points," he said. "So whether it is 50 or 75, I can't say right now, but let us not think that 50 is not a substantial move."

Atlanta Fed president Raphael Bostic, speaking in a separate interview with the Wall Street Journal, said that he had not yet decided whether to back a 50- or 75-basis point increase at the Sept 20 to 21 gathering of the Federal Open Market Committee.

"At this point, I would toss a coin between the two," he told the Wall Street Journal. "We all, as policymakers, understand that inflation is a big problem and is a challenge that we are going to do all that we can to handle."

The pricing in interest rate futures markets shows that investors view the odds of a 50- or 75-basis point increase as evenly balanced.

Mr Bostic echoed Ms George's point that the current 2.25 per cent to 2.5 per cent target range for the Fed's benchmark policy rate was not yet in territory where it was slowing down economic activity.

He sees a neutral rate - a theoretical level that neither speeds up nor brakes the economy - of close to 3 per cent.

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