(Bloomberg) — Federal Reserve officials stressed on Friday that further rate hikes are needed to curb inflation, even as there are signs that price pressures are easing.
Raphael Bostic, president of the Atlanta Fed, said inflation is still too high and reiterated his support for a rate hike of more than 5%, from current levels of just under 4.5%. Richmond Fed President Thomas Barkin said in separate remarks “we still have work to do” to bring price gains back to the Fed’s target of 2%.
In another speech, Fed Governor Lisa Cook highlighted several signs of easing inflationary pressures, including declining wage increases, while emphasizing that inflation remained far too high for the Fed’s liking.
They all spoke after two major data releases on Friday morning suggested the Fed’s efforts to curb inflation were having an effect.
The government’s December jobs report showed average hourly wages in the US rose 0.3% in December from a month earlier and 4.6% from December 2021 – both less than expected – following a downward trend update to November. But job growth remained solid and the unemployment rate fell from 3.6% to 3.5%.
A separate report showed that the services sector was unexpectedly weak last month and price increases eased slightly.
What Bloomberg Economics Says…
“The momentum in the labor market may have picked up again after loosening up towards the end of last year. Together with what we know about early revisions to benchmark data, that leads us to expect two more rate hikes of 25 basis points from the Fed, with the closing rate reaching 5% in March.”
– Anna Wong and Eliza Winger, economists
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Treasury yields plummeted on Friday and traders adjusted their expectations on how high the Fed might push its benchmark, while also betting at the next meeting, which takes place on January 31 and February 2017, more on a quarter-point increase rather than a move half a point. 1. Inflation data expected next week may be more decisive for the Fed’s next move.
Bostic indicated in an interview on CNBC that he is open to a quarter or a half point.
“Today I would be comfortable with a 50 or a 25, and if I start to hear signs that the labor market tightness is starting to ease a bit, then I might lean more into the 25 basis point position,” Bostic said at Friday. an interview with CNBC. His peak rate projection of 5% to 5.25% is “the range I think we should go to if the economy continues as I expect, which is a continued gradual slowdown.”
Fed officials raised rates by 50 basis points in December, moderating their rate of increase after four consecutive 75 basis point steps, while signaling that they expect to continue rising in 2023.
The rise raised their benchmark to 4.3% and officials predicted a peak of 5.1%, according to their median forecast.
“They will certainly continue to raise rates at the end of this month — they will probably continue to do so in March,” former Fed Governor Randall Kroszner told Bloomberg Surveillance after the jobs report. “But it makes it more likely that they will go 25 basis points at these meetings instead of 50 basis points. I think that’s really where it will be.”
“They will certainly continue to buy insurance” against the risk of inflation remaining sticky amid a tight labor market, said Kroszner, an economics professor at the University of Chicago’s Booth School of Business, who called the data an “immaculate disinflation.” . report” as both wage growth and the unemployment rate declined.