REUTERS
"Fed wants 'flexibility' on rates as inflation remains key focus, minutes show"
By Howard Schneider
January 4, 2023
WASHINGTON, Jan 4 (Reuters) - All officials at the Federal Reserve's Dec. 13-14 policy meeting agreed the U.S. central bank should slow the pace of its aggressive interest rate increases, allowing them to continue increasing the cost of credit to control inflation but in a gradual way meant to limit the risks to economic growth.
The minutes of the meeting, which were released on Wednesday, showed policymakers still focused on controlling the pace of price increases that threatened to run hotter than anticipated, and worried about any "misperception" in financial markets that their commitment to fighting inflation was flagging.
But officials also acknowledged they had made "significant progress" over the past year in raising rates enough to bring inflation down.
As a result, the central bank now needed to balance its fight against rising prices with the risks of slowing the economy too much and "potentially placing the largest burdens on the most vulnerable groups" through higher-than-necessary unemployment.
"Most participants emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance," the minutes said, indicating officials may be prepared to scale back to quarter-percentage-point increases as of the Jan. 31-Feb. 1 meeting, but also remained open to an even higher than anticipated "terminal" rate if high inflation persists.
Indeed, the minutes put a premium on explaining that the decision to move to smaller rate increases should not be construed by investors or the public at large as a weakening of the Fed's commitment to bring inflation back to its 2% target.
"Participants reaffirmed their strong commitment to returning inflation to the (Federal Open Market) Committee's 2% objective," the minutes said.
"A number of participants emphasized that it would be important to clearly communicate that a slowing in the pace of rate increases was not an indication of any weakening of the Committee's resolve to achieve its price stability goal."
LONGER INFLATION FIGHT
Policymakers approved a half-percentage-point rate increase at last month's meeting, a step back from the three-quarters-of-a-percentage-point hikes used through much of 2022.
"No participants anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023," the minutes said.
Markets and some economists, however, have yet to give up the idea that the Fed will do just that before the year runs out, reinforcing the communications challenge facing Fed Chair Jerome Powell and his colleagues this year.
"Our view is still that rapidly easing inflation, combined with a notable drop-off in employment growth will alter the landscape quite dramatically over the first half of this year," Capital Economics Chief North American Economist Paul Ashworth said in a note after the readout was published.
"After a final 50 (basis points) of tightening over the first quarter, taking the fed funds rate to a peak of close to 5%, we still expect the Fed to be cutting rates again before the end of this year."
Interest-rate futures, too, showed traders largely sticking to bets the Fed will lift the target interest rate to just shy of 5% in coming months and then begin cutting it in the second half of the year.
Fed officials in December projected that rate, currently in the 4.25%-4.50% range, would rise to just over 5% by the end of 2023 and likely remain there for some time.
How long "restrictive" monetary policy will be needed could become an emerging topic of debate.
The U.S. economic outlook presented by Fed staff at last month's meeting suggested that the battle to lower prices may last longer than anticipated.
Recent economic growth had been stronger than previously expected, Fed staff said, and as a result economic output was not expected to slow to a below-trend pace and unemployment rise above its "natural rate" until "near the end of 2024" - a year later than anticipated.
Below-trend growth and unemployment above the natural rate are considered among the conditions that can slow inflation.
Still, for some policymakers the risks to growth had become more pressing, with Fed staff suggesting that a recession over the next year was a "plausible alternative."
"Many participants highlighted" that the Fed, after a year in which it tightened monetary policy at the fastest pace since the 1980s, now had to balance its fight against inflation with the possibility of a policy overshoot that "could end up being more restrictive than necessary."
"A slowing in the pace of rate increases at this meeting would better allow the Committee to assess the economy's progress ... as monetary policy approached a stance that was sufficiently restrictive."
Reporting by Howard Schneider; Additional reporting by Ann Saphir and Michael S. Derby; Editing by Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/fed- ... 023-01-04/
THE FEDERAL RESERVE
Re: THE FEDERAL RESERVE
REUTERS
"Fed's George: It will be key to hold rates up once hikes end"
By Michael S. Derby
January 5, 2023
NEW YORK, Jan 5 (Reuters) - Kansas City Federal Reserve leader Esther George said on Thursday that she hopes the central bank will continue its efforts to shrink its balance sheet, while also warning that she believes the Fed will need to press forward with rate rises and keep them high for some time once the tightening process ends.
In an interview on CNBC, George said she believes the Fed will need to lift a federal funds rate target now at between 4.25% and 4.5% to over 5% and stay there "for some time...until we get the signal that inflation is really convincingly starting to fall back toward our 2% goal."
George is retiring from the Kansas City Fed this month.
She held a voting role on the rate-setting Federal Open Market Committee last year.
The Fed veteran - she started at the bank in 1982 - was often one of the most hawkish policymakers serving at the central bank.
She ended up voting against her colleagues' preferred monetary policy stance in nearly half of her FOMC votes, a record without compare among currently serving policymakers.
In the interview, George said her colleagues should press forward with their ongoing efforts to shrink the size of the Fed's balance sheet.
Along with its efforts to raise short-term rates to combat high levels of inflation, the Fed is reducing the size of its holdings of securities and cash.
From a peak of nearly $9 trillion this summer, the Fed now holds $8.6 trillion, as it sheds nearly $100 billion per month in bonds it now owns.
The Fed has given no guidance about where it will stop its drawdown.
A growing number of analysts believe the Fed may have to stop this year due to looming shortages of reserves in the banking system that would threaten its ability to have strong control over its interest rate target.
"I think it's very important that the Committee follow through on its plans to significantly reduce the balance sheet," George said.
She noted that she still views the Fed using its balance sheet as a tool of monetary policy as experimental and full of the possibility of unintended effects on the economy.
"I think we still have a lot to learn about what the consequences are of these balance sheet policies," George said.
But she was not ready to say that Fed actions that doubled the size of its balance sheet over the course of the pandemic were wrong, because it was unclear how that period of crisis would play out.
George said that she doesn't believe the size of the Fed's balance sheet has created major financial stability risks but said it's something that needs watching.
Some have argued Fed asset buying drives too much risk-taking, creating the rising threat of unexpected trouble.
"I think you always have to be concerned about financial stability," George said.
"That doesn't mean I see something on the verge of blowing up, but I think we know from history, those things don't really manifest themselves until they do."
Reporting by Michael S. Derby; Editing by Raissa Kasolowsky and Andrea Ricci
https://www.reuters.com/markets/us/feds ... 023-01-05/
"Fed's George: It will be key to hold rates up once hikes end"
By Michael S. Derby
January 5, 2023
NEW YORK, Jan 5 (Reuters) - Kansas City Federal Reserve leader Esther George said on Thursday that she hopes the central bank will continue its efforts to shrink its balance sheet, while also warning that she believes the Fed will need to press forward with rate rises and keep them high for some time once the tightening process ends.
In an interview on CNBC, George said she believes the Fed will need to lift a federal funds rate target now at between 4.25% and 4.5% to over 5% and stay there "for some time...until we get the signal that inflation is really convincingly starting to fall back toward our 2% goal."
George is retiring from the Kansas City Fed this month.
She held a voting role on the rate-setting Federal Open Market Committee last year.
The Fed veteran - she started at the bank in 1982 - was often one of the most hawkish policymakers serving at the central bank.
She ended up voting against her colleagues' preferred monetary policy stance in nearly half of her FOMC votes, a record without compare among currently serving policymakers.
In the interview, George said her colleagues should press forward with their ongoing efforts to shrink the size of the Fed's balance sheet.
Along with its efforts to raise short-term rates to combat high levels of inflation, the Fed is reducing the size of its holdings of securities and cash.
From a peak of nearly $9 trillion this summer, the Fed now holds $8.6 trillion, as it sheds nearly $100 billion per month in bonds it now owns.
The Fed has given no guidance about where it will stop its drawdown.
A growing number of analysts believe the Fed may have to stop this year due to looming shortages of reserves in the banking system that would threaten its ability to have strong control over its interest rate target.
"I think it's very important that the Committee follow through on its plans to significantly reduce the balance sheet," George said.
She noted that she still views the Fed using its balance sheet as a tool of monetary policy as experimental and full of the possibility of unintended effects on the economy.
"I think we still have a lot to learn about what the consequences are of these balance sheet policies," George said.
But she was not ready to say that Fed actions that doubled the size of its balance sheet over the course of the pandemic were wrong, because it was unclear how that period of crisis would play out.
George said that she doesn't believe the size of the Fed's balance sheet has created major financial stability risks but said it's something that needs watching.
Some have argued Fed asset buying drives too much risk-taking, creating the rising threat of unexpected trouble.
"I think you always have to be concerned about financial stability," George said.
"That doesn't mean I see something on the verge of blowing up, but I think we know from history, those things don't really manifest themselves until they do."
Reporting by Michael S. Derby; Editing by Raissa Kasolowsky and Andrea Ricci
https://www.reuters.com/markets/us/feds ... 023-01-05/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bullard says prospects for a U.S. soft landing are rising"
By Michael S. Derby
January 5, 2023
Jan 5 (Reuters) - St. Louis Federal Reserve leader James Bullard expressed optimism on Thursday that the new year could finally bring relief from inflation, adding the risk of a U.S. recession has fallen in recent weeks.
The rate-setting Federal Open Market Committee “has taken aggressive action during 2022, with ongoing increases in the policy rate planned for 2023, and this has returned inflation expectations to a level consistent with the Fed’s 2% inflation target,” Bullard said in material prepared for a presentation before a meeting held by the CFA Society St. Louis.
“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.
Bullard held a voting role on the FOMC during 2022 but will not this year due to the annual rotation of regional Fed leaders on that panel.
Last year was dominated by the central bank’s historically aggressive campaign to lift rates to lower some of the highest levels of inflation seen in decades.
That saw the central bank take its overnight short-term rate target from near zero levels in March to the current 4.25% to 4.50% range.
The Fed last lifted that target in December, going up 50 basis points, and it penciled in a move to 5.1% this year.
Officials have said wherever they stop with rates they are likely to stay for a while as they ensure inflation pressures are easing.
Bullard said he is increasingly upbeat the Fed can achieve its goal of lowering inflation without sending the economy into a recession, as many Fed critics and economists now believe will happen.
"The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable," Bullard told reporters after his remarks.
"And the reason I think that the prospects for a soft landing have increased is that the labor market has not weakened the way many had predicted" and growth levels rebounded from weakness, he said.
"The labor market can remain fairly resilient during 2023," the official said, noting the many companies are still hiring.
"This is a great time to fight inflation" because of the strong job market, Bullard said, adding "fight inflation now, get it under control, get it back to 2% while you've got the resilient labor market."
Bullard said monetary policy is not yet in a space where it is holding the economy back but soon will be.
"The policy rate is still a little bit below the sufficiently restrictive zone, so I think it would behoove the Committee to get into that zone as soon as we can," he told reporters.
Bullard also said that he sees no reason to change the Fed's balance sheet drawdown, adding the Fed may have the chance to re-evaluate how many bonds to sell in six months to a year.
He said the contraction of the Fed's balance sheet, which was at $9 trillion this summer and now stands $8.6 trillion, has been going well.
Reporting by Michael S. Derby; Editing by Andrea Ricci and Lisa Shumaker
https://www.reuters.com/markets/us/feds ... 023-01-05/
"Fed's Bullard says prospects for a U.S. soft landing are rising"
By Michael S. Derby
January 5, 2023
Jan 5 (Reuters) - St. Louis Federal Reserve leader James Bullard expressed optimism on Thursday that the new year could finally bring relief from inflation, adding the risk of a U.S. recession has fallen in recent weeks.
The rate-setting Federal Open Market Committee “has taken aggressive action during 2022, with ongoing increases in the policy rate planned for 2023, and this has returned inflation expectations to a level consistent with the Fed’s 2% inflation target,” Bullard said in material prepared for a presentation before a meeting held by the CFA Society St. Louis.
“During 2023, actual inflation will likely follow inflation expectations to a lower level as the real economy normalizes,” he said.
Bullard held a voting role on the FOMC during 2022 but will not this year due to the annual rotation of regional Fed leaders on that panel.
Last year was dominated by the central bank’s historically aggressive campaign to lift rates to lower some of the highest levels of inflation seen in decades.
That saw the central bank take its overnight short-term rate target from near zero levels in March to the current 4.25% to 4.50% range.
The Fed last lifted that target in December, going up 50 basis points, and it penciled in a move to 5.1% this year.
Officials have said wherever they stop with rates they are likely to stay for a while as they ensure inflation pressures are easing.
Bullard said he is increasingly upbeat the Fed can achieve its goal of lowering inflation without sending the economy into a recession, as many Fed critics and economists now believe will happen.
"The probability of a soft landing has increased compared to where it was in the fall of 2022, where it was looking more questionable," Bullard told reporters after his remarks.
"And the reason I think that the prospects for a soft landing have increased is that the labor market has not weakened the way many had predicted" and growth levels rebounded from weakness, he said.
"The labor market can remain fairly resilient during 2023," the official said, noting the many companies are still hiring.
"This is a great time to fight inflation" because of the strong job market, Bullard said, adding "fight inflation now, get it under control, get it back to 2% while you've got the resilient labor market."
Bullard said monetary policy is not yet in a space where it is holding the economy back but soon will be.
"The policy rate is still a little bit below the sufficiently restrictive zone, so I think it would behoove the Committee to get into that zone as soon as we can," he told reporters.
Bullard also said that he sees no reason to change the Fed's balance sheet drawdown, adding the Fed may have the chance to re-evaluate how many bonds to sell in six months to a year.
He said the contraction of the Fed's balance sheet, which was at $9 trillion this summer and now stands $8.6 trillion, has been going well.
Reporting by Michael S. Derby; Editing by Andrea Ricci and Lisa Shumaker
https://www.reuters.com/markets/us/feds ... 023-01-05/
Re: THE FEDERAL RESERVE
CNBC
"Raphael Bostic says Fed needs to ‘stay the course’ despite lower wage gains"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, JAN 6 2023
KEY POINTS
* Atlanta Fed President Raphael Bostic said Friday that December’s jobs report doesn’t change his view on monetary policy.
* “We’ve got to stay the course,” Bostic said, adding he expects another quarter- or half-point rate hike when the Fed releases its next decision on Feb. 1.
Atlanta Federal Reserve President Raphael Bostic said Friday that December’s jobs report, with its slowdown in wage increases and better-than-expected employment growth, doesn’t change his view on monetary policy.
The central bank official said he still sees interest rates rising, up past 5% for the Fed’s benchmark funds rate, where he sees it staying for a prolonged period.
“It doesn’t really change my outlook at all,” Bostic told CNBC’s Steve Liesman during a live interview at a conference in New Orleans.
“I’ve been looking for the economy to continually slow from the strong position it was at in the summertime."
"This is just the next step in that.”
Nonfarm payrolls added 223,000 positions last month, and the unemployment rate fell to 3.5%, the Labor Department reported.
That was slightly better than respective estimates for 200,000 and 3.7%.
Perhaps more importantly, average hourly earnings rose just 0.3% for the month and 4.6% from a year ago, both below expectations and an indicator that the inflation spiral gripping the economy for the past year and a half may be easing.
Still, Bostic said he expects another rate increase of either a quarter- or half-percentage point when the Fed releases its decision Feb. 1.
The funds rate is currently targeted between 4.25% and 4.5%.
Bostic is a nonvoting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.
Open jobs still outnumber available workers by nearly 2 to 1, and wage growth is well above where it was before the Covid pandemic.
Bostic added that he doesn’t think wages have been a key driver of the inflation that escalated in mid-2021 toward its highest level in more than 40 years.
“We’ve got to stay the course,” he said.
“Inflation is too high."
"We need to reduce those imbalances so it moves more rapidly to our 2% [inflation] target.”
Fed officials at their December meeting expressed concern that the public might misinterpret the central bank’s move to a small rate hike — 0.5 percentage point from four straight 0.75 percentage point moves — as an easing in policy.
Bostic emphasized the Fed can’t “claim victory prematurely” and needs not only to keep pushing rates higher, but to keep them there.
“What I think is the important [point] is just to hold there and stay there and let that policy stance really grip the economy and just make sure that the momentum is fully arrested, so that we get to a place where demand and supply start to become more interbalanced and we start to see those pressures on inflation really start to come down,” he said.
Bostic said he does not expect a recession to follow the Fed’s actions, and if there is one he sees it as “short and shallow.”
https://www.cnbc.com/2023/01/06/raphael ... gains.html
"Raphael Bostic says Fed needs to ‘stay the course’ despite lower wage gains"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED FRI, JAN 6 2023
KEY POINTS
* Atlanta Fed President Raphael Bostic said Friday that December’s jobs report doesn’t change his view on monetary policy.
* “We’ve got to stay the course,” Bostic said, adding he expects another quarter- or half-point rate hike when the Fed releases its next decision on Feb. 1.
Atlanta Federal Reserve President Raphael Bostic said Friday that December’s jobs report, with its slowdown in wage increases and better-than-expected employment growth, doesn’t change his view on monetary policy.
The central bank official said he still sees interest rates rising, up past 5% for the Fed’s benchmark funds rate, where he sees it staying for a prolonged period.
“It doesn’t really change my outlook at all,” Bostic told CNBC’s Steve Liesman during a live interview at a conference in New Orleans.
“I’ve been looking for the economy to continually slow from the strong position it was at in the summertime."
"This is just the next step in that.”
Nonfarm payrolls added 223,000 positions last month, and the unemployment rate fell to 3.5%, the Labor Department reported.
That was slightly better than respective estimates for 200,000 and 3.7%.
Perhaps more importantly, average hourly earnings rose just 0.3% for the month and 4.6% from a year ago, both below expectations and an indicator that the inflation spiral gripping the economy for the past year and a half may be easing.
Still, Bostic said he expects another rate increase of either a quarter- or half-percentage point when the Fed releases its decision Feb. 1.
The funds rate is currently targeted between 4.25% and 4.5%.
Bostic is a nonvoting member this year of the rate-setting Federal Open Market Committee; he will vote again in 2024.
Open jobs still outnumber available workers by nearly 2 to 1, and wage growth is well above where it was before the Covid pandemic.
Bostic added that he doesn’t think wages have been a key driver of the inflation that escalated in mid-2021 toward its highest level in more than 40 years.
“We’ve got to stay the course,” he said.
“Inflation is too high."
"We need to reduce those imbalances so it moves more rapidly to our 2% [inflation] target.”
Fed officials at their December meeting expressed concern that the public might misinterpret the central bank’s move to a small rate hike — 0.5 percentage point from four straight 0.75 percentage point moves — as an easing in policy.
Bostic emphasized the Fed can’t “claim victory prematurely” and needs not only to keep pushing rates higher, but to keep them there.
“What I think is the important [point] is just to hold there and stay there and let that policy stance really grip the economy and just make sure that the momentum is fully arrested, so that we get to a place where demand and supply start to become more interbalanced and we start to see those pressures on inflation really start to come down,” he said.
Bostic said he does not expect a recession to follow the Fed’s actions, and if there is one he sees it as “short and shallow.”
https://www.cnbc.com/2023/01/06/raphael ... gains.html
Re: THE FEDERAL RESERVE
REUTERS
"U.S. jobs report breathes life into Fed's 'soft landing' scenario"
By Howard Schneider and Ann Saphir
January 6, 2023
NEW ORLEANS/SAN FRANCISCO, Jan 6 (Reuters) - A jump in the workforce and easing wage growth suggests the U.S. job market is starting to move the way the Federal Reserve has hoped it will, to bring the supply and demand for workers into better balance and help in its battle against inflation.
After a year in which many basic metrics of the jobs market stalled at levels the U.S. central bank feels are inconsistent with stable prices, employment data for December published on Friday brought a hint of relief.
Nearly 165 million people were either in jobs or looking for them last month, a record high that showed a long-hoped-for improvement in labor supply.
U.S. firms added 223,000 payroll jobs to cap a year in which 4.5 million people were hired, a total exceeded in the post-World War Two era only by 2021's 6.7 million.
At the same time, hourly wages - the price of labor - grew at the slowest annual pace in 16 months and has dropped by a full percentage point since the end of the first quarter of 2022.
Weekly average earnings gained 3.1%, the slowest pace since May 2021.
The jobs report is "the embodiment of the soft landing narrative - this idea that can you have a strong labor market with slowing wage growth," said Simona Mocuta, chief economist at State Street Global Advisors.
"You can kind of, in this case, have your cake and eat it too," she added, with earnings growth coming off the boil but no collapse in labor demand or widespread layoffs.
Ideally, she said, that should allow the Fed to slow and soon pause its interest rate hikes.
Traders took the report as evidence the Fed's work is near to being done.
U.S. stocks rose and interest-rate futures traders added to bets the Fed will slow its rate hike pace further at its Jan. 31-Feb. 1 meeting and ultimately stop short of the 5.00%-5.25% policy rate range that nearly all U.S. central bankers have signaled they believe will be needed to bring inflation to heel.
'FAR TOO HIGH'
Fed policymakers, however, had a decidedly more sober take on Friday's data, signaling they are locked into further rate hikes and will want to see a lot more data confirming easing of price pressures before they stop the tightening.
Atlanta Fed President Raphael Bostic on Friday said he expects the policy rate this year to get to the range just above 5.00% that he and his colleagues signaled last month and stay there until "well" into 2024.
That's a stark contrast to traders' expectations for the policy rate, now in the 4.25%-4.50% range, to top out at 4.75%-5.00% and then for the Fed to begin cutting borrowing costs in the second half of this year.
"Today I would be comfortable with either a 50 or a 25 (basis-point increase)," Bostic told broadcaster CNBC, referring to the Fed's upcoming rate-setting decision.
"If I start to hear signs that the labor market is starting to ease a bit in terms of its tightness, then I might lean more into the 25-basis-point position," he said, adding that at this point he doesn't see wages as driving inflation.
Minutes of last month's policy meeting, which were published this week, reflected the anxiety the Fed has over how the labor market was affecting its inflation fight, with officials worrying that core inflation components "would likely remain persistently elevated if the labor market remained very tight."
The U.S. unemployment rate fell back to a pre-pandemic low of 3.5% in December.
The employment data, while only reflecting a single month, nonetheless presented a welcome easing in some of those dynamics that have weighed so heavily on officials' minds in their bid to keep reducing inflation, which was running at the highest rates in 40 years in the middle of last year.
By the Fed's preferred measure, the personal consumption expenditures price index, inflation rose at an annual rate of 5.5% in November, down from earlier in 2022 but still more than twice the central bank's 2% target.
The Fed pulled out all the stops last year in its bid to quash inflation, taking its policy rate from near zero in March to the current level in the swiftest series of rate hikes in more than a generation.
More inflation data due next week will play into the Fed's calculus about where to go in the months ahead, with the Labor Department's Consumer Price Index expected to show price pressures had softened further in December.
The annual CPI rate is expected to have dropped to a 14-month low of 6.5% in December from 7.1% in the prior month, and the month-to-month rate is forecast to have been unchanged, an abrupt turnaround for a measure that had been running at its highest rate since the early 1980s just six months earlier.
"We have seen the inflation dynamics in the U.S. slow significantly," Robin Brooks, chief economist at the Institute of International Finance, said on Friday at the annual meeting of the American Economic Association (AEA) in New Orleans.
"That is a very real development."
"And it has more or less persisted."
"That's really good news."
That may be true, but Fed officials - who got caught flatfooted in their early response to inflation's surge - are far from chiming victory bells.
"Recent data suggest that labor-compensation growth has indeed started to decelerate somewhat over the past year," Fed Governor Lisa Cook told the AEA meeting.
Still, she said, "inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern."
Reporting by Howard Schneider and Ann Saphir; Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao
https://www.reuters.com/markets/us/us-j ... 023-01-06/
"U.S. jobs report breathes life into Fed's 'soft landing' scenario"
By Howard Schneider and Ann Saphir
January 6, 2023
NEW ORLEANS/SAN FRANCISCO, Jan 6 (Reuters) - A jump in the workforce and easing wage growth suggests the U.S. job market is starting to move the way the Federal Reserve has hoped it will, to bring the supply and demand for workers into better balance and help in its battle against inflation.
After a year in which many basic metrics of the jobs market stalled at levels the U.S. central bank feels are inconsistent with stable prices, employment data for December published on Friday brought a hint of relief.
Nearly 165 million people were either in jobs or looking for them last month, a record high that showed a long-hoped-for improvement in labor supply.
U.S. firms added 223,000 payroll jobs to cap a year in which 4.5 million people were hired, a total exceeded in the post-World War Two era only by 2021's 6.7 million.
At the same time, hourly wages - the price of labor - grew at the slowest annual pace in 16 months and has dropped by a full percentage point since the end of the first quarter of 2022.
Weekly average earnings gained 3.1%, the slowest pace since May 2021.
The jobs report is "the embodiment of the soft landing narrative - this idea that can you have a strong labor market with slowing wage growth," said Simona Mocuta, chief economist at State Street Global Advisors.
"You can kind of, in this case, have your cake and eat it too," she added, with earnings growth coming off the boil but no collapse in labor demand or widespread layoffs.
Ideally, she said, that should allow the Fed to slow and soon pause its interest rate hikes.
Traders took the report as evidence the Fed's work is near to being done.
U.S. stocks rose and interest-rate futures traders added to bets the Fed will slow its rate hike pace further at its Jan. 31-Feb. 1 meeting and ultimately stop short of the 5.00%-5.25% policy rate range that nearly all U.S. central bankers have signaled they believe will be needed to bring inflation to heel.
'FAR TOO HIGH'
Fed policymakers, however, had a decidedly more sober take on Friday's data, signaling they are locked into further rate hikes and will want to see a lot more data confirming easing of price pressures before they stop the tightening.
Atlanta Fed President Raphael Bostic on Friday said he expects the policy rate this year to get to the range just above 5.00% that he and his colleagues signaled last month and stay there until "well" into 2024.
That's a stark contrast to traders' expectations for the policy rate, now in the 4.25%-4.50% range, to top out at 4.75%-5.00% and then for the Fed to begin cutting borrowing costs in the second half of this year.
"Today I would be comfortable with either a 50 or a 25 (basis-point increase)," Bostic told broadcaster CNBC, referring to the Fed's upcoming rate-setting decision.
"If I start to hear signs that the labor market is starting to ease a bit in terms of its tightness, then I might lean more into the 25-basis-point position," he said, adding that at this point he doesn't see wages as driving inflation.
Minutes of last month's policy meeting, which were published this week, reflected the anxiety the Fed has over how the labor market was affecting its inflation fight, with officials worrying that core inflation components "would likely remain persistently elevated if the labor market remained very tight."
The U.S. unemployment rate fell back to a pre-pandemic low of 3.5% in December.
The employment data, while only reflecting a single month, nonetheless presented a welcome easing in some of those dynamics that have weighed so heavily on officials' minds in their bid to keep reducing inflation, which was running at the highest rates in 40 years in the middle of last year.
By the Fed's preferred measure, the personal consumption expenditures price index, inflation rose at an annual rate of 5.5% in November, down from earlier in 2022 but still more than twice the central bank's 2% target.
The Fed pulled out all the stops last year in its bid to quash inflation, taking its policy rate from near zero in March to the current level in the swiftest series of rate hikes in more than a generation.
More inflation data due next week will play into the Fed's calculus about where to go in the months ahead, with the Labor Department's Consumer Price Index expected to show price pressures had softened further in December.
The annual CPI rate is expected to have dropped to a 14-month low of 6.5% in December from 7.1% in the prior month, and the month-to-month rate is forecast to have been unchanged, an abrupt turnaround for a measure that had been running at its highest rate since the early 1980s just six months earlier.
"We have seen the inflation dynamics in the U.S. slow significantly," Robin Brooks, chief economist at the Institute of International Finance, said on Friday at the annual meeting of the American Economic Association (AEA) in New Orleans.
"That is a very real development."
"And it has more or less persisted."
"That's really good news."
That may be true, but Fed officials - who got caught flatfooted in their early response to inflation's surge - are far from chiming victory bells.
"Recent data suggest that labor-compensation growth has indeed started to decelerate somewhat over the past year," Fed Governor Lisa Cook told the AEA meeting.
Still, she said, "inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern."
Reporting by Howard Schneider and Ann Saphir; Additional reporting by Lindsay Dunsmuir; Editing by Dan Burns and Paul Simao
https://www.reuters.com/markets/us/us-j ... 023-01-06/
Re: THE FEDERAL RESERVE
CNBC
"Fed’s Bowman says there’s ‘a lot more work to do’ to bring down inflation"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED TUE, JAN 10 2023
KEY POINTS
* Federal Reserve Governor Michelle Bowman said Tuesday she expects more interest rate increases ahead, with higher rates to prevail for a while until inflation is subdued.
* “I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time,” she said.
Federal Reserve Governor Michelle Bowman said Tuesday she expects more interest rate increases ahead, with higher rates to prevail for a while until inflation is subdued.
“I am committed to taking further actions to bring inflation back down to our goal,” the central bank official said in remarks prepared for a speech in Florida.
“In recent months, we’ve seen a decline in some measures of inflation but we have a lot more work to do, so I expect the [Federal Open Market Committee] will continue raising interest rates to tighten monetary policy.”
The FOMC has increased the Fed’s benchmark borrowing rate seven times since March 2022, for a total of 4.25 percentage points.
Last week, minutes from the committee’s December meeting indicated that most members were on board with additional hikes in 2023, likely taking the fed funds rate slightly above 5%.
Reflecting the consensus at that meeting, Bowman said she sees elevated rates holding until there are “compelling signs that inflation has peaked and for more consistent indications that inflation is on a downward path” before easing up on restrictive monetary policy.
“I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market,” she said.
Policy will be guided by incoming economic data for indications of how Fed policy is impacting growth, she added.
Bowman spoke the same day as Fed Chairman Jerome Powell addressed the Fed’s Swedish counterpart, the Riksbank.
In that speech, Powell stressed the need for the Fed to remain independent of political influences as it carves out policy aimed at bringing about stable prices.
Bowman drew upon past experience, noting the mistakes the Fed made in the 1970s, when it raised rates to address inflation but then lowered them when the economy slowed.
She said she understands that Fed policy could slow the economy and in particular the labor market, but insisted that doing nothing carried higher costs.
“It’s important to keep in mind that there are costs and risks to tightening policy to lower inflation, but I see the costs and risks of allowing inflation to persist as far greater,” Bowman said.
https://www.cnbc.com/2023/01/10/feds-bo ... ation.html
"Fed’s Bowman says there’s ‘a lot more work to do’ to bring down inflation"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED TUE, JAN 10 2023
KEY POINTS
* Federal Reserve Governor Michelle Bowman said Tuesday she expects more interest rate increases ahead, with higher rates to prevail for a while until inflation is subdued.
* “I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time,” she said.
Federal Reserve Governor Michelle Bowman said Tuesday she expects more interest rate increases ahead, with higher rates to prevail for a while until inflation is subdued.
“I am committed to taking further actions to bring inflation back down to our goal,” the central bank official said in remarks prepared for a speech in Florida.
“In recent months, we’ve seen a decline in some measures of inflation but we have a lot more work to do, so I expect the [Federal Open Market Committee] will continue raising interest rates to tighten monetary policy.”
The FOMC has increased the Fed’s benchmark borrowing rate seven times since March 2022, for a total of 4.25 percentage points.
Last week, minutes from the committee’s December meeting indicated that most members were on board with additional hikes in 2023, likely taking the fed funds rate slightly above 5%.
Reflecting the consensus at that meeting, Bowman said she sees elevated rates holding until there are “compelling signs that inflation has peaked and for more consistent indications that inflation is on a downward path” before easing up on restrictive monetary policy.
“I expect that once we achieve a sufficiently restrictive federal funds rate, it will need to remain at that level for some time in order to restore price stability, which will in turn help to create conditions that support a sustainably strong labor market,” she said.
Policy will be guided by incoming economic data for indications of how Fed policy is impacting growth, she added.
Bowman spoke the same day as Fed Chairman Jerome Powell addressed the Fed’s Swedish counterpart, the Riksbank.
In that speech, Powell stressed the need for the Fed to remain independent of political influences as it carves out policy aimed at bringing about stable prices.
Bowman drew upon past experience, noting the mistakes the Fed made in the 1970s, when it raised rates to address inflation but then lowered them when the economy slowed.
She said she understands that Fed policy could slow the economy and in particular the labor market, but insisted that doing nothing carried higher costs.
“It’s important to keep in mind that there are costs and risks to tightening policy to lower inflation, but I see the costs and risks of allowing inflation to persist as far greater,” Bowman said.
https://www.cnbc.com/2023/01/10/feds-bo ... ation.html
Re: THE FEDERAL RESERVE
CNBC
"Powell says Fed might have to make unpopular decisions to stabilize prices"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED TUE, JAN 10 2023
KEY POINTS
* Fed Chairman Jerome Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
* In other remarks, the central bank leader said the Fed is “not, and will not be, a ‘climate policymaker.’”
Federal Reserve Chairman Jerome Powell on Tuesday emphasized the need for the central bank to be free of political influence while it tackles persistently high inflation.
In a speech delivered to Sweden’s Riksbank, Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time."
"But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” the chairman said in prepared remarks.
“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he added.
Powell’s remarks came at a forum to discuss central bank independence and were to be followed by a question-and-answer session.
The speech did not contain any direct clues about where policy is headed for a Fed that raised interest rates seven times in 2022, for a total of 4.25 percentage points, and has indicated that more increases likely are on the way this year.
While criticism of Fed actions by elected leaders is often done in quieter tones, the Powell Fed has faced vocal opposition from both sides of the political aisle.
Former President Donald Trump ripped the central bank when it was raising rates during his administration, while progressive leaders such as Sen. Elizabeth Warren, D-Mass., have criticized the current round of hikes.
President Joe Biden has largely resisted commenting on Fed moves while noting that it is primarily the central bank’s responsibility to tackle inflation.
Powell has repeatedly said that political factors have not weighed on his actions.
In another part of Tuesday’s speech, he addressed calls from some lawmakers for the Fed to use its regulatory powers to address climate change.
Powell noted that the Fed should “stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”
While the Fed has asked big banks to examine their financial readiness in case of major climate-related events such as hurricanes and floods, Powell said that’s as far as it should go.
“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” he said.
“But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals."
"We are not, and will not be, a ‘climate policymaker.’”
The Fed this year will launch a pilot program that calls for the nation’s six biggest banks to take part in a “scenario analysis” aimed at testing institutions’ stability in the event of major climate events.
The exercise will take place apart from the so-called stress tests that the Fed uses to test how banks would fare under hypothetical economic downturns.
Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
https://www.cnbc.com/2023/01/10/powell- ... ation.html
"Powell says Fed might have to make unpopular decisions to stabilize prices"
Jeff Cox @JEFF.COX.7528 @JEFFCOXCNBCCOM
PUBLISHED TUE, JAN 10 2023
KEY POINTS
* Fed Chairman Jerome Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
* In other remarks, the central bank leader said the Fed is “not, and will not be, a ‘climate policymaker.’”
Federal Reserve Chairman Jerome Powell on Tuesday emphasized the need for the central bank to be free of political influence while it tackles persistently high inflation.
In a speech delivered to Sweden’s Riksbank, Powell noted that stabilizing prices requires making tough decisions that can be unpopular politically.
“Price stability is the bedrock of a healthy economy and provides the public with immeasurable benefits over time."
"But restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy,” the chairman said in prepared remarks.
“The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors,” he added.
Powell’s remarks came at a forum to discuss central bank independence and were to be followed by a question-and-answer session.
The speech did not contain any direct clues about where policy is headed for a Fed that raised interest rates seven times in 2022, for a total of 4.25 percentage points, and has indicated that more increases likely are on the way this year.
While criticism of Fed actions by elected leaders is often done in quieter tones, the Powell Fed has faced vocal opposition from both sides of the political aisle.
Former President Donald Trump ripped the central bank when it was raising rates during his administration, while progressive leaders such as Sen. Elizabeth Warren, D-Mass., have criticized the current round of hikes.
President Joe Biden has largely resisted commenting on Fed moves while noting that it is primarily the central bank’s responsibility to tackle inflation.
Powell has repeatedly said that political factors have not weighed on his actions.
In another part of Tuesday’s speech, he addressed calls from some lawmakers for the Fed to use its regulatory powers to address climate change.
Powell noted that the Fed should “stick to our knitting and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities.”
While the Fed has asked big banks to examine their financial readiness in case of major climate-related events such as hurricanes and floods, Powell said that’s as far as it should go.
“Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public’s will as expressed through elections,” he said.
“But without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals."
"We are not, and will not be, a ‘climate policymaker.’”
The Fed this year will launch a pilot program that calls for the nation’s six biggest banks to take part in a “scenario analysis” aimed at testing institutions’ stability in the event of major climate events.
The exercise will take place apart from the so-called stress tests that the Fed uses to test how banks would fare under hypothetical economic downturns.
Participating institutions are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Wells Fargo.
https://www.cnbc.com/2023/01/10/powell- ... ation.html
Re: THE FEDERAL RESERVE
REUTERS
"Powell: Fed needs independence to fight inflation, should avoid social policy"
By Lindsay Dunsmuir and Howard Schneider
January 10, 2023
STOCKHOLM, Jan 10 (Reuters) - The Federal Reserve's independence from political influence is central to its ability to battle inflation, but requires it stay out of issues like climate change that are beyond its congressionally established mandate, Fed Chair Jerome Powell said on Tuesday.
"Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy."
"The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors," Powell said in remarks to a forum on central bank independence sponsored by the Swedish central bank.
But "we should 'stick to our knitting' and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities," Powell said.
"Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence."
Though Powell said the Fed's regulatory powers give it a "narrow" role to ensure financial institutions "appropriately manage" the risks they face from climate change, "we are not, and will not be, a 'climate policymaker.'"
"Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals," he said.
"Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections," he told the forum in Stockholm.
Powell's comments, particularly about climate change, are not new.
But the restatement came in sharp terms as his first public remarks since the U.S. Republican Party installed one of its members as Speaker of the House of Representatives, and began selecting new chairs for the committees that oversee federal government operations including the Fed.
Powell, now in his fifth year as Fed chair, has put a high priority on building strong relationships with elected officials from both major U.S. parties, but faced criticism from some Republicans for, in their view, allowing the Fed to wander from its core responsibilities into areas like climate change and the economics of race.
STAYING ON MISSION
Climate change has been a particular flashpoint.
While Powell's view of the Fed's role stands in contrast to major central banks in Europe that have integrated green economy efforts into their policymaking, it recognizes the more divided politics in the United States.
Powell appeared to nod to that in his comments in Stockholm.
To maintain authority over its core mission of managing inflation and demand, "we need to deserve it, and that means stick to that work and don’t look for broader things," Powell said.
"We shouldn’t be getting ahead of where the public is if there’s no specific mandate."
"In the case of the U.S. that’s a particularly salient point."
There's even disagreement within the Fed over the appropriate stance on climate risks.
When the Fed recently asked for public comment about "a high-level framework for the safe and sound management of exposures to climate-related financial risks," Fed Governor Christopher Waller said he did not support issuing guidance on the issue because while "climate change is real...I disagree with the premise that it poses a serious risk" to financial stability.
When it comes to inflation, however, Powell said it was critical the Fed retain the ability to manage as it sees fit - raising interest rates to control inflation even if that means slower growth and higher unemployment.
Powell said he felt that principle is "well understood and broadly accepted," in the United States, embodied in a federal law that charges the Fed with maintaining maximum employment and stable prices.
Reporting by Lindsay Dunsmuir in Stockholm and Howard Schneider in Washington; Editing by Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/powe ... 023-01-10/
"Powell: Fed needs independence to fight inflation, should avoid social policy"
By Lindsay Dunsmuir and Howard Schneider
January 10, 2023
STOCKHOLM, Jan 10 (Reuters) - The Federal Reserve's independence from political influence is central to its ability to battle inflation, but requires it stay out of issues like climate change that are beyond its congressionally established mandate, Fed Chair Jerome Powell said on Tuesday.
"Restoring price stability when inflation is high can require measures that are not popular in the short term as we raise interest rates to slow the economy."
"The absence of direct political control over our decisions allows us to take these necessary measures without considering short-term political factors," Powell said in remarks to a forum on central bank independence sponsored by the Swedish central bank.
But "we should 'stick to our knitting' and not wander off to pursue perceived social benefits that are not tightly linked to our statutory goals and authorities," Powell said.
"Taking on new goals, however worthy, without a clear statutory mandate would undermine the case for our independence."
Though Powell said the Fed's regulatory powers give it a "narrow" role to ensure financial institutions "appropriately manage" the risks they face from climate change, "we are not, and will not be, a 'climate policymaker.'"
"Without explicit congressional legislation, it would be inappropriate for us to use our monetary policy or supervisory tools to promote a greener economy or to achieve other climate-based goals," he said.
"Decisions about policies to directly address climate change should be made by the elected branches of government and thus reflect the public's will as expressed through elections," he told the forum in Stockholm.
Powell's comments, particularly about climate change, are not new.
But the restatement came in sharp terms as his first public remarks since the U.S. Republican Party installed one of its members as Speaker of the House of Representatives, and began selecting new chairs for the committees that oversee federal government operations including the Fed.
Powell, now in his fifth year as Fed chair, has put a high priority on building strong relationships with elected officials from both major U.S. parties, but faced criticism from some Republicans for, in their view, allowing the Fed to wander from its core responsibilities into areas like climate change and the economics of race.
STAYING ON MISSION
Climate change has been a particular flashpoint.
While Powell's view of the Fed's role stands in contrast to major central banks in Europe that have integrated green economy efforts into their policymaking, it recognizes the more divided politics in the United States.
Powell appeared to nod to that in his comments in Stockholm.
To maintain authority over its core mission of managing inflation and demand, "we need to deserve it, and that means stick to that work and don’t look for broader things," Powell said.
"We shouldn’t be getting ahead of where the public is if there’s no specific mandate."
"In the case of the U.S. that’s a particularly salient point."
There's even disagreement within the Fed over the appropriate stance on climate risks.
When the Fed recently asked for public comment about "a high-level framework for the safe and sound management of exposures to climate-related financial risks," Fed Governor Christopher Waller said he did not support issuing guidance on the issue because while "climate change is real...I disagree with the premise that it poses a serious risk" to financial stability.
When it comes to inflation, however, Powell said it was critical the Fed retain the ability to manage as it sees fit - raising interest rates to control inflation even if that means slower growth and higher unemployment.
Powell said he felt that principle is "well understood and broadly accepted," in the United States, embodied in a federal law that charges the Fed with maintaining maximum employment and stable prices.
Reporting by Lindsay Dunsmuir in Stockholm and Howard Schneider in Washington; Editing by Paul Simao and Andrea Ricci
https://www.reuters.com/markets/us/powe ... 023-01-10/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Harker ready to downshift to 25 basis-point interest rate hikes"
By Michael S. Derby
January 12, 2023
NEW YORK, Jan 12 (Reuters) - Federal Reserve Bank of Philadelphia leader Patrick Harker said Thursday that while the central bank needs to raise rates more to cool off inflation, it can probably do so at a much slower pace compared to the action of last year.
“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Harker said in a speech to a local group in Malvern, Pa.
“In my view, hikes of 25 basis points will be appropriate going forward.”
Once the Fed gets to a stopping place for rate increases, Harker said it will likely have to hold there for a while.
“At some point this year, I expect that the policy rate will be restrictive enough that we will hold rates in place to let monetary policy do its work,” the official said.
Harker will be a voting member of the rate-setting Federal Open Market Committee this year.
In 2022, the Fed raised rates at a historically aggressive pace and lifted its target rate from near zero levels in the spring to between 4.25% and 4.5% at the December meeting.
The Fed penciled in a stopping point of 5.1% for 2023 at the last FOMC meeting.
Financial markets have been actively debating whether the Fed can now move in smaller increases relative to last year, when a number of the increases were in 75 basis point increments.
The Fed hiked rates by half a percentage point last month and now many believe the Fed can slow to 25 basis point moves this year as it moves toward the endgame of its tightening process.
“I’ve been in the camp that we need to get rates above 5%,” Harker said after his formal remarks, adding “I don’t think we need go much further than 5%" on the federal funds rate.
Harker was upbeat about the economy’s ability to navigate the Fed’s action.
Overall activity in 2023 “will be modest, but I’m not forecasting a recession,” the official said, noting he expects to see the gross domestic product rise by 1% this year.
“What’s encouraging is that even as we are raising rates, and seeing some signs that inflation is cooling, the national economy remains relatively healthy overall,” Harker said.
On the hiring front, “I’m most pleased that the labor market remains in excellent shape,” Harker said, adding he sees unemployment rising from its current 3.5% level to 4.5% this year before moving back to 4% over the next couple of years.
Harker also said he believes the surge in price pressures has started to run its course, citing the December consumer price index data, released Thursday, as evidence of this trend.
“In the rearview mirror, I expect, are the eye-popping inflation readings of 2022,” the official said.
He said core inflation should be around 3.5% this year.
Harker added the Fed should reach its inflation goal in 2025.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 023-01-12/
"Fed's Harker ready to downshift to 25 basis-point interest rate hikes"
By Michael S. Derby
January 12, 2023
NEW YORK, Jan 12 (Reuters) - Federal Reserve Bank of Philadelphia leader Patrick Harker said Thursday that while the central bank needs to raise rates more to cool off inflation, it can probably do so at a much slower pace compared to the action of last year.
“I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed,” Harker said in a speech to a local group in Malvern, Pa.
“In my view, hikes of 25 basis points will be appropriate going forward.”
Once the Fed gets to a stopping place for rate increases, Harker said it will likely have to hold there for a while.
“At some point this year, I expect that the policy rate will be restrictive enough that we will hold rates in place to let monetary policy do its work,” the official said.
Harker will be a voting member of the rate-setting Federal Open Market Committee this year.
In 2022, the Fed raised rates at a historically aggressive pace and lifted its target rate from near zero levels in the spring to between 4.25% and 4.5% at the December meeting.
The Fed penciled in a stopping point of 5.1% for 2023 at the last FOMC meeting.
Financial markets have been actively debating whether the Fed can now move in smaller increases relative to last year, when a number of the increases were in 75 basis point increments.
The Fed hiked rates by half a percentage point last month and now many believe the Fed can slow to 25 basis point moves this year as it moves toward the endgame of its tightening process.
“I’ve been in the camp that we need to get rates above 5%,” Harker said after his formal remarks, adding “I don’t think we need go much further than 5%" on the federal funds rate.
Harker was upbeat about the economy’s ability to navigate the Fed’s action.
Overall activity in 2023 “will be modest, but I’m not forecasting a recession,” the official said, noting he expects to see the gross domestic product rise by 1% this year.
“What’s encouraging is that even as we are raising rates, and seeing some signs that inflation is cooling, the national economy remains relatively healthy overall,” Harker said.
On the hiring front, “I’m most pleased that the labor market remains in excellent shape,” Harker said, adding he sees unemployment rising from its current 3.5% level to 4.5% this year before moving back to 4% over the next couple of years.
Harker also said he believes the surge in price pressures has started to run its course, citing the December consumer price index data, released Thursday, as evidence of this trend.
“In the rearview mirror, I expect, are the eye-popping inflation readings of 2022,” the official said.
He said core inflation should be around 3.5% this year.
Harker added the Fed should reach its inflation goal in 2025.
Reporting by Michael S. Derby; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 023-01-12/
Re: THE FEDERAL RESERVE
REUTERS
"Fed's Bullard says latest inflation data step in right direction"
Reuters
January 12, 2023
Jan 12 (Reuters) - The U.S. economy is primed for disinflation this year but the path back to the Federal Reserve's 2% target will be bumpy and require interest rates to remain higher for longer, St. Louis Fed President James Bullard said on Thursday.
"It is encouraging that we got some information today that went in the right direction," Bullard said during an event organized by the Wisconsin Bankers Association, referencing government data released earlier on Thursday that showed U.S. consumer prices fell for the first time in more than 2-1/2 years in December.
"So far, so good."
"My bottom line for 2023 is that it will be a year of disinflation."
Following the data, investors in fed funds futures predicted the Fed will opt for a quarter percentage point interest rate increase at the conclusion of its next policy meeting on Feb. 1 and ultimately stop raising rates before they get to 5%.
Bullard also once again stated a preference for getting the Fed's policy rate north of 5% "as soon as possible" but conceded that the tactics of how quickly to get there was less important than the eventual stopping point and ruled out any swift action by the Fed to cut rates even if inflation continues on its downward path.
"There's probably too much optimism inflation is going to easily come back to 2%."
"That is not the history of inflation," Bullard said, noting that he expects the path down to be bumpy.
"We are really moving into an era of higher nominal interest rates for quite a while going forward as we try to continue to put downward pressure."
The Fed's main policy rate currently sits in a target range of 4.25% to 4.50% and central bank policymakers have already made clear they hope to stop raising rates this spring.
Bullard also repeated comments made last week that recession risks over the past three months had receded "some" and that the prospects of inflation coming down without a sharp rise in unemployment, a so-called 'soft landing,' have improved.
Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 023-01-12/
"Fed's Bullard says latest inflation data step in right direction"
Reuters
January 12, 2023
Jan 12 (Reuters) - The U.S. economy is primed for disinflation this year but the path back to the Federal Reserve's 2% target will be bumpy and require interest rates to remain higher for longer, St. Louis Fed President James Bullard said on Thursday.
"It is encouraging that we got some information today that went in the right direction," Bullard said during an event organized by the Wisconsin Bankers Association, referencing government data released earlier on Thursday that showed U.S. consumer prices fell for the first time in more than 2-1/2 years in December.
"So far, so good."
"My bottom line for 2023 is that it will be a year of disinflation."
Following the data, investors in fed funds futures predicted the Fed will opt for a quarter percentage point interest rate increase at the conclusion of its next policy meeting on Feb. 1 and ultimately stop raising rates before they get to 5%.
Bullard also once again stated a preference for getting the Fed's policy rate north of 5% "as soon as possible" but conceded that the tactics of how quickly to get there was less important than the eventual stopping point and ruled out any swift action by the Fed to cut rates even if inflation continues on its downward path.
"There's probably too much optimism inflation is going to easily come back to 2%."
"That is not the history of inflation," Bullard said, noting that he expects the path down to be bumpy.
"We are really moving into an era of higher nominal interest rates for quite a while going forward as we try to continue to put downward pressure."
The Fed's main policy rate currently sits in a target range of 4.25% to 4.50% and central bank policymakers have already made clear they hope to stop raising rates this spring.
Bullard also repeated comments made last week that recession risks over the past three months had receded "some" and that the prospects of inflation coming down without a sharp rise in unemployment, a so-called 'soft landing,' have improved.
Reporting by Lindsay Dunsmuir; Editing by Chizu Nomiyama
https://www.reuters.com/markets/us/feds ... 023-01-12/