THE FEDERAL RESERVE

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REUTERS

"Fed delivers another big rate hike; Powell vows to 'keep at it'"


By Howard Schneider and Ann Saphir

September 21, 2022

Summary

* Fed lifts target interest rate to 3.00%-3.25% range

* Forecasts show another large hike likely by end of year

* Powell: No 'painless' way to bring down inflation


WASHINGTON, Sept 21 (Reuters) - Federal Reserve Chair Jerome Powell vowed on Wednesday that he and his fellow policymakers would "keep at" their battle to beat down inflation, as the U.S. central bank hiked interest rates by three-quarters of a percentage point for a third straight time and signaled that borrowing costs would keep rising this year.

In a sobering new set of projections, the Fed foresees its policy rate rising at a faster pace and to a higher level than expected, the economy slowing to a crawl, and unemployment rising to a degree historically associated with recessions.

Powell was blunt about the "pain" to come, citing rising joblessness and singling out the housing market, a persistent source of rising consumer inflation, as being likely in need of a "correction."

Earlier on Wednesday, the National Association of Realtors reported that U.S. existing home sales dropped for a seventh straight month in August.

The United States has had a "red hot housing market ..."

"There was a big imbalance," Powell said in a news conference after Fed policymakers unanimously agreed to raise the central bank's benchmark overnight interest rate to a range of 3.00%-3.25%.

"What we need is supply and demand to get better aligned ..."

"We probably in the housing market have to go through a correction to get back to that place."

That theme, of a continuing mismatch between U.S. demand for goods and services and the ability of the country to produce or import them, ran through a briefing in which Powell stuck with the hawkish tone set during his remarks last month at the Jackson Hole central banking conference in Wyoming.

Recent inflation data has shown little to no improvement despite the Fed's aggressive tightening - it also announced 75-basis-point rate hikes in June and July - and the labor market remains robust with wages increasing as well.

The federal funds rate projected for the end of this year signals another 1.25 percentage points in rate hikes to come in the Fed's two remaining policy meetings in 2022, a level that implies another 75-basis-point increase in the offing.

"The committee is strongly committed to returning inflation to its 2% objective," the central bank's rate-setting Federal Open Market Committee said in its policy statement after the end of a two-day policy meeting.

The Fed "anticipates that ongoing increases in the target range will be appropriate."

GROWTH SLOWDOWN

The Fed's target policy rate is now at its highest level since 2008 - and new projections show it rising to the 4.25%-4.50% range by the end of this year and ending 2023 at 4.50%-4.75%.

Powell said the indicated path of rates showed the Fed was "strongly resolved" to bring down inflation from the highest levels in four decades and that officials would "keep at it until the job is done" even at the risk of unemployment rising and growth slowing to a stall.

"We have got to get inflation behind us," Powell told reporters.

"I wish there were a painless way to do that."

"There isn't."

Inflation by the Fed's preferred measure has been running at more than three times the central bank's target.

The new projections put it on a slow path back to 2% in 2025, an extended Fed battle to quell the highest bout of inflation since the 1980s, and one that potentially pushes the economy to the borderline of a recession.


The Fed said that "recent indicators point to modest growth in spending and production," but the new projections put year-end economic growth for 2022 at 0.2%, rising to 1.2% in 2023, well below the economy's potential.

The unemployment rate, currently at 3.7%, is projected to rise to 3.8% this year and to 4.4% in 2023.

That would be above the half-percentage-point rise in unemployment that has been associated with past recessions.

"The Fed was late to recognize inflation, late to start raising interest rates, and late to start unwinding bond purchases."

"They've been playing catch-up ever since."

"And they're not done yet," said Greg McBride, chief financial analyst at Bankrate.


U.S. stocks, already mired in a bear market over concerns about the Fed's monetary policy tightening, ended the day sharply lower, with the S&P 500 index skidding 1.8%.

In the U.S. Treasury market, which plays a key role in the transmission of Fed policy decisions into the real economy, yields on the 2-year note vaulted over the 4% mark, their highest levels since 2007.

The dollar hit a fresh two-decade high against a basket of currencies, gaining more than 1%.

The U.S. currency's strength - it has appreciated by more than 16% on a year-to-date basis - has stoked concern at central banks around the world about potential exchange rate and other financial shocks.

Some are not even trying to match the Fed's blistering pace of tightening, with the Bank of Japan on Thursday expected to hold fast to its ultra-easy policy and keep its policy rate at minus 0.1%, likely leaving it as the last major monetary policy authority in the world with a negative policy rate.

Others are making an effort to stay somewhat abreast of the Fed.

The Bank of England, for example, is expected to lift its policy rate by at least half a percentage point on Thursday.

Reporting by Howard Schneider; Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao

https://www.reuters.com/markets/europe/ ... 022-09-21/
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REUTERS

"Fed's Mester: with inflation high, better to act 'aggressively'"


By Ann Saphir

SEPTEMBER 26, 2022

(Reuters) - With inflation “unacceptably high,” the Federal Reserve should lift rates higher and keep policy restrictive for some time, Cleveland Fed President Loretta Mester said on Monday -- and if there is an error to be made, better that the Fed do too much than to do too little.

“When there is uncertainty, it can be better for policymakers to act more aggressively because aggressive and pre-emptive action can prevent the worst-case outcomes from actually coming about,” Mester said in remarks prepared for delivery to the Massachusetts Institute of Technology.

Mester said she would be “very cautious” about assessing inflation, and would need to see several months of declines in month-to-month readings to be convinced it had peaked.

Similarly, she said she will “guard against being complacent” on long-term inflation expectations that have recently dropped a bit but may not, she said, be as well-anchored as hoped and could rise again.

Policymakers faced with uncertainty over inflation expectations should risk setting policy too tight rather than too loose, she said.

“Research indicates that erroneously assuming that longer-term inflation expectations are well anchored at the level consistent with price stability when, in fact, they are not is a more costly error for the economy than assuming they are not well-anchored when they actually are,” Mester said.

The Fed last week increased its policy rate to 3%-3.25% in its third 75 basis point hike in so many meetings.

Policymakers signaled another similar sized hike is likely at their next meeting in November, with more increases on tap in subsequent months, as the U.S. central bank seeks to get borrowing costs high enough to bite into growth and bring down inflation running at three times its target, even at the cost of a rise in unemployment.

“Further increases in our policy rate will be needed,” Mester said.

“In order to put inflation on a sustained downward trajectory to 2%, monetary policy will need to be in a restrictive stance, with real interest rates moving into positive territory and remaining there for some time.”

Reporting by Ann Saphir; Editing by Andrea Ricci

https://www.reuters.com/article/usa-fed ... SL1N30X1ZJ
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CNBC

"Fed’s Evans says he’s getting a little nervous about going too far, too fast with rate hikes"


Sam Meredith @SMEREDITH19

PUBLISHED TUE, SEP 27 2022

KEY POINTS

* Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.

* His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.


Chicago Federal Reserve President Charles Evans says he’s feeling apprehensive about the U.S. central bank raising interest rates too quickly in its quest to tackle runaway inflation.

Speaking to CNBC’s “Squawk Box Europe” on Tuesday, Evans said he remains “cautiously optimistic” that the U.S. economy can avoid a recession — provided there are no further external shocks.

His comments come shortly after a slew of top Fed officials said they would continue to prioritize the fight against inflation, which is currently running near its highest levels since the early 1980s.

The central bank raised benchmark interest rates by three-quarters of a percentage point earlier last week, the third consecutive increase of that size.

Fed officials also indicated they would continue hiking rates well above the current range of 3% to 3.25%.

Asked about investor fears that the Fed didn’t seem to be waiting long enough to adequately assess the impact of its interest rate increases, Evans replied, “Well, I am a little nervous about exactly that.”

“There are lags in monetary policy and we have moved expeditiously."

"We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release,” Evans said.

‘Peak funds rate’

Traders have been concerned that the Fed is remaining more hawkish for longer than some had anticipated.

The Fed’s Evans, 64, has consistently been one of the Fed’s policy doves in favor of lower rates and more accommodation.

He will retire from his position early next year.

“Again, I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks."

"And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” Evans said.

“That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties,” he said.

“Goodness knows every time I thought the supply chains were going to improve, that we were going to get auto production up and used car prices down and housing and all of that something has happened."

"So, cautiously optimistic.”

— CNBC’s Jeff Cox contributed to this report.

https://www.cnbc.com/2022/09/27/feds-ev ... hikes.html
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REUTERS

"Fed's Harker says housing shortage a key inflation driver"


By Michael S. Derby

September 27, 2022

NEW YORK, Sept 27 (Reuters) - Federal Reserve Bank of Philadelphia President Patrick Harker said on Tuesday a housing shortage is a key driver of the nation's historic surge in inflation.

"Since the Great Recession, the United States has not built enough housing to keep price growth relatively modest," Harker said in an essay published on the bank's website.

This shortage is "a major driver of the far-too-high inflation plaguing our country," he added.

"Inflation is far too high across most goods and services in our economy," Harker said, noting that the Fed "is working to stabilize inflation and put the economy on a firmer footing for the long haul."

Harker, a nonvoting member of the rate-setting Federal Open Market Committee, did not comment on the monetary policy outlook in his essay.

The central bank has been pressing forward with aggressive rate hikes aimed at taming the highest inflation in four decades.

Last week, the FOMC hiked its overnight target rate range by 0.75 percentage point, to between 3% and 3.25%, as it signaled more increases ahead.

Fed officials and many private sector economists tie the inflation surge to pandemic-related disruptions and periods of aggressive government stimulus.

Housing has been a key factor in rising prices.

Harker's essay noted that housing-driven inflation is "particularly alarming" in part because along with food price increases, housing factors affect almost all Americans.

Moreover, "high housing inflation is a macroeconomic problem; money spent on housing is money not spent on education, durable goods, or meals out," he added.

"We must do everything we can to get shelter inflation under control."

Reporting by Michael S. Derby; Editing by Chris Reese and Richard Chang

https://www.reuters.com/markets/us/feds ... 022-09-27/
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REUTERS

"Fed's Evans: Market volatility can create restrictiveness"


By Dhara Ranasinghe and Jorgelina Do Rosario

September 28, 2022

LONDON, Sept 28 (Reuters) - Federal Reserve Bank of Chicago President Charles Evans said on Wednesday that volatility in markets can create additional restrictiveness in financial conditions.

Global markets have been whipsawed this week by turmoil in UK markets, already on edge over aggressive rate hikes from the U.S. Federal Reserve and other major central banks.

"The U.S. economy and inflation are going to be largely dictated by the stance of monetary policy and everything else that is going on supply shocks, the labour issues we're dealing with," Evans said in London.

"It is a case that financial market volatility can add to additional financial restrictiveness."

"So anything around the world in terms of policy or developments like Russia's invasion of Ukraine can add to additional restrictiveness."

Still, speaking with reporters after an event at the London School of Economics, Evans gave no indication that any of that would blow the Fed off its course.

"We just really need to get inflation in check," Evans said.

It would be good, he said, to get the Fed policy rate - now at 3%-3.25% - to a range of 4.5%-4.75% by the end of the year or March, and then keep it there for a while.

Real rates currently are "not nearly restrictive enough," given high inflation, but by March should be around 2%, he said, enough to put downward pressure on prices.

Relief on inflation could also come from improvements in supply, he said, and giving him some comfort is the fact that inflation expectations are "relatively consistent" with the Fed's 2% inflation goal.

Reporting by Dhara Ranasinghe, Jorgelina Do Rosario in London and Ann Saphir in San Francisco; Editing by Matthew Lewis and David Gregorio

https://www.reuters.com/markets/europe/ ... 022-09-28/
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REUTERS

'Fed's Evans: expect to reach top Fed policy rate by March"


By Dhara Ranasinghe and Jorgelina Do Rosario

September 28, 2022

LONDON, Sept 28 (Reuters) - The Federal Reserve is raising interest rates expeditiously to address very high, persistent inflation, and will likely get U.S. short-term borrowing costs to where they need to be by early next year, Federal Reserve Bank of Chicago President Charles Evans said Wednesday.

Most Fed policymakers are penciling in a top Fed policy rate of 4.5% to 4.75% by end of next year, based on their projections published last week, and "by March we will be at that point," Evans said at an event on current economic conditions hosted by the London School of Economics.

Benchmark U.S. 10-year Treasury yields rose to their highest level in about 12-1/2 years on Tuesday as investors girded for higher interest rates that could possibly remain for longer than anticipated as Federal Reserve officials held firm in their hawkish stance.

Since August 2, the 10-year yield has surged by 145 bps.

The Federal Reserve has aggressively hiked interest rates by 3 percentage points this year, taking its target range to 3.00%-3.25%.

It carried out its third consecutive 75 basis point increase last week and signaled that rates are likely to rise to the 4.25%-4.5% range by the end of the year.

Reporting by Dhara Ranasinghe, Jorgelina Do Rosario and Ann Saphir; Editing by Andrea Ricci

https://www.reuters.com/markets/us/feds ... 022-09-28/
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REUTERS

"Fed's Bostic backs 75-basis-point hike in November, smaller rise in December"


By Howard Schneider

September 28, 2022

WASHINGTON, Sept 28 (Reuters) - The lack of clear progress on inflation means the Federal Reserve needs "moderately restrictive" interest rates that should reach a level between 4.25% and 4.50% by the end of this year, Atlanta Fed President Raphael Bostic said on Wednesday.

"Inflation is still high ... and it is not moving with enough speed back down to our 2% target," Bostic said in a conference call from Atlanta, adding that his baseline outlook is for the U.S. central bank to hike rates by three-quarters of a percentage point at its November policy meeting and by half a percentage point at the December gathering.

That puts Bostic at the median of his colleagues who projected last week that they would need to lift the Fed's target policy rate an additional 1.25 percentage points at the two remaining meetings this year.

That rate is currently in a range of 3.00% to 3.25%.

Recent overseas events, Bostic said, including a crash in the value of the British pound and an emergency return to bond-buying by the Bank of England, had not yet influenced his views on appropriate Fed policy or raised a risk of economic contagion in the United States.

U.S. Treasury markets showed no evidence of dysfunction, he said, and the economy's "considerable momentum," particularly its strong job market, "suggest it is less likely that contagion would play out."

Markets tied to the federal funds rate, however, have wavered in recent days as events overseas rattled investors, a U.S. equities sell-off continued, and economists said risks of a global recession were rising.

Traders on Wednesday put less than even odds on the prospect of the Fed getting its policy rate to the 4.25%-4.50% range cited by Bostic and other officials by year's end.

Bostic did say there were signs U.S. demand had begun to cool, a precursor in his view to falling inflation, and if that happens fast enough "the less we will have to do" with interest rates.

Housing "has definitely cooled" under the pressure of rising mortgage interest rates, he said, adding that businesses in his district "noted a steep decline in demand for consumer discretionary products," a sign consumers may be tightening their belts.

As well, "a growing chorus" of executives report it is getting easier to hire workers, Bostic said.

If those trends continue it could provide a clue that inflation will turn lower, and give the Fed a reason to halt its rate hikes.

"I would expect growth to be below trend, we would start to see demand for a wider range of products start to soften, and we would start to see labor markets start to be more rationalized," Bostic said, with few job openings and slower wage growth.

If that begins to happen, it will be a sign that ... "we should contemplate stopping and holding at that level."

Reporting by Howard Schneider; Editing by Paul Simao

https://www.reuters.com/markets/us/feds ... 022-09-28/
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REUTERS

"Fed's Daly: no U.S. recession needed to defeat high inflation"


By Reuters Staff

SEPTEMBER 29, 2022

(Reuters) - The Federal Reserve needs to slow the U.S. economy and take the heat out of the strong jobs market to bring down corrosively high inflation, San Francisco Fed chief Mary Daly said on Thursday, but it doesn’t need to trigger a recession to do so.

The Fed last week delivered a third-straight 75-basis-point interest rate increase, lifting its policy rate target range to 3%-3.25%, and signaled rates will likely rise to 4.4% by year end and to 4.6% in following months.

The U.S. central bank hasn’t raised rates this sharply since the 1980s, which was also the last time inflation - now more than three times the Fed’s 2% goal - ran higher than today.

The Fed’s rate hikes then plunged the economy into two recessions, including one that was particularly deep and painful, and analysts worry that this time won’t be much different.


“Navigating the economy toward a more sustainable path necessitates higher interest rates and a downshift in the pace of economic activity and the labor market,” Daly said in remarks prepared for delivery to Boise State University in Idaho, a view also expressed last week by Fed Chair Jerome Powell and several Fed policymakers since.

“But for now, inducing a deep recession does not seem warranted by conditions, nor is it necessary to achieve our goals.”

That’s because, she said, households and businesses haven’t so far built an expectation for ever-higher-prices into their mindset, unlike 40 years ago when inflation ran high for a decade before the Fed took decisive action.

Inflation this time around has been running above the Fed’s target for about a year and a half.

Still, Daly said, the Fed cannot take well-anchored inflation expectations for granted, warning that the longer inflation stays high, the more likely it will undermine Americans’ confidence in the Fed’s ability to bring it down.

That could force the central bank to take the kind of dramatic action it did in the 1980s -- jacking rates up well into the double digits, and plunging the economy into a tailspin.

Risks to a soft landing for the economy are “myriad,” Daly said, and include ongoing COVID battles, the war in Ukraine, a recession ahead for Europe, and central banks globally tightening policy.

These risks, along with persistent supply chain issues, “robust” consumer spending, and a strong labor market marked by low 3.7% unemployment, “narrow the path for a smooth landing,” she said.

“But they do not close it.”

Daly devoted the bulk of her speech to laying out how damaging inflation is to households and businesses, and making the case that slowing the labor market now is better for Americans in the long run.

The Fed will, she said, need to pay close attention to the economic data so it doesn’t do either too much or too little.

“History tells us that the costs of errors are high,” she said.

Reporting by Ann Saphir; Editing by Andrea Ricci

https://www.reuters.com/article/usa-fed ... SL1N31024C
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REUTERS

"Fed's Mester: Doesn't see financial stability problems for US"


By Michael S. Derby

September 29, 2022

Sept 29 (Reuters) - Federal Reserve Bank of Cleveland President Loretta Mester said Thursday she does not see distress in U.S. financial markets that would alter the central bank's campaign to lower very high levels of inflation through interest rate hikes.

While "no one knows for sure" if there is a big problem lurking in the financial sector right now, "so far, we haven't seen the kind of market dysfunction, even through what's happening in the global markets right now, we haven't seen that in the U.S. markets," Mester said in an interview on CNBC.

Mester touched on market conditions amid very unsettled conditions across the globe.

She acknowledged that Bank of England actions this week to buy bonds to stabilize markets there appeared at odds with its work to lower inflation.

The BoE's actions appeared "a little bit incoherent because they were buying bonds at the same time they're talking about raising interest rates," Mester said.

But she added there were "good reasons" for what the UK central bank did, saying "market functioning is incredibly important, because you won't be able to hit any monetary policy goals if the markets aren't functioning."


Mester, who holds a voting role on the rate setting Federal Open Market Committee, said she still sees inflation as the paramount problem facing the economy, which means the central bank needs to press forward with rate rises, lifting a federal funds target rate range now at between 3.00%-3.25% to over 4%.

The Fed has faced concerns that its aggressive rate hikes aimed at lowering inflation from 40-year highs will send the economy into recession.

Financial markets have also been under broad pressure and suffered steep losses, and many observers worry Fed actions, coupled with rate rises from other major central banks, could trigger market dysfunction.

Mester said she does not see a case for slowing down on rate rises right now.

She noted that at last week's FOMC meeting officials penciled in a path for the federal funds target rate that will get it to 4.6% next year and said she expects the central bank will likely have to go further than that.

"I probably am a little bit above that median path because I see more persistence in the inflation process," Mester said.

Getting above a 4% fed funds rate is important to helping to lower inflation, she said.

Mester also said job market demand continues to outpace supply.

She also said the strong dollar is a helpful force to lower U.S. inflation.

The central banker also cautioned against taking too much signal from data showing a decline in the nation's money supply.

Some see the drop as a sign that future inflation levels will fall.

"Money supply hasn't been that reliable an indicator for a long time," Mester said.

Measurements of the money stock are "not figuring into my calculus at the moment."

Reporting by Michael S. Derby; Editing by Dan Burns and Chizu Nomiyama

https://www.reuters.com/markets/europe/ ... 022-09-29/
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CNBC

"Fed Vice Chair Brainard warns against retreating from inflation fight prematurely"


Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM

PUBLISHED FRI, SEP 30 2022

Federal Reserve Vice Chair Lael Brainard on Friday stressed the need to tackle inflation and the importance of not shrinking from the task until it is finished.

“Monetary policy will need to be restrictive for some time to have confidence that inflation is moving back to target,” the central bank official said in remarks prepared for a speech in New York.

“For these reasons, we are committed to avoiding pulling back prematurely.”


The remarks came a little more than a week after the Fed enacted its fifth interest rate increase of the year, pushing its benchmark funds rate to a range of 3%-3.25%.

September’s increase marked the third consecutive 0.75 percentage point increase for a rate that feeds through to most adjustable-rate consumer debt.

While Fed officials and many economists expect that inflation may have peaked, Brainard warned against complacency.

“Inflation is very high in the United States and abroad, and the risk of additional inflationary shocks cannot be ruled out,” she said.

Earlier Friday morning, the Commerce Department released data showing that inflation continued to push higher in August, as measured by the Fed’s preferred personal consumption expenditures price index.


Core PCE increased 4.9% year over year and 0.6% for the month, both higher than estimates and well above the Fed’s 2% inflation target.

Since the Fed has hiked rates, Treasury yields have soared and the dollar has increased in value rapidly against its global peers.

Brainard noted the ramifications of a higher U.S. currency, saying that it is exerting inflationary pressures globally.

“On balance, dollar appreciation tends to reduce import prices in the United States,” she said.

“But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.”

The Fed is far from alone in tightening policy, as central banks around the world have been raising rates to combat their own inflation problems.

However, the Fed has been more aggressive than most of its peers, something Brainard noted could have spillover effects.

https://www.cnbc.com/2022/09/30/fed-vic ... urely.html
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