Federal Reserve policymakers may need to lift U.S. borrowing costs above the peak 5.1% they penciled in just this week, and keep them there perhaps into 2024 to squeeze high inflation out of the economy, three of them signaled on Friday.
The hawkish messages, delivered in separate appearances by New York Fed President John Williams, San Francisco Fed President Mary Daly, and Cleveland Fed President Loretta Mester, underscore the U.S. central bank's determination to do what it takes to ease price pressures that erode wages and strain household budgets, despite what analysts say could be a million or more jobs lost in the process.
The Fed this year has raised rates from near zero in March to a range of 4.25%-4.5% in the steepest round of rate hikes since the 1980s, the last time it battled fast-rising prices. Inflation by the Fed's preferred measure is currently running at 6%, three times its 2% target. On Friday, the broad S&P 500 stock-market index closed down about 2% on the week as the Fed's more hawkish stance sunk in. Bond traders meanwhile appear to be quite convinced the Fed will indeed beat inflation.Fed policymakers have welcomed inflation's recent deceleration, driven by easing supply chain problems and higher interest rates restraining the housing market.U.S. employers have added hundreds of thousands of jobs each month and the unemployment rate is at a low 3.7%.
Over the past several rate-hiking cycles, the Fed raised rates and kept them there for an average of 11 months before cutting them. As of last month, central bank staff economists viewed the risks of recession against continued growth as roughly even,sees a 0.3% decline in overall activity next year and flat growth in 2024, with a return to positive growth the year after.While not a recession per se, such slow growth means an unexpected shock could easily trigger an outright contraction for a couple of quarters, Cleveland Fed's Mester told Bloomberg TV.
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