FED OFFICIALS MULLING A SLOWER PACE OF RATE INCREASES

All indications are signaling that the U.S. Federal Reserve will add another three-quarters of a point to its key interest rate when its Open Market Committee meets next week.

However, in that session, “we will have a very thoughtful discussion about the pace of tightening at our next meeting,” Fed governor Christopher Wallace said in a speech earlier this month.

So far, Fed officials’ internal discussions are breaking along two lines, according to The Wall Street Journal.

One camp wants to slow the pace of increases, then halt them next year to see how inflation and the economy are reacting to this year’s headlong rush to higher borrowing costs.

“The time is now to start planning for stepping down,” Mary Daly, president of the Federal Reserve Bank of San Francisco, said in a 21 October speech at the University of California Berkeley.

Lael Brainard, the Fed’s vice chair, has expressed concerns about lifting the rate by three-quarters of a point after November, the WSJ noted, citing comments in a 10 October speech. 

“A series of super-sized rate increases might cause you to oversteer and not be able to see turning points,” Kansas City Fed president Esther George said in a 10 October webinar.

Another group feels it still is too soon to have that conversation because inflation has not yet slowed, despite the Fed’s steady rate hikes over the past seven months.

“We can’t let wishful thinking drive our policy decisions,” Loretta Mester, president of the Cleveland Fed, said in a 6 October comment.

She favors a three-quarter-point bump at each of the Fed’s next two meetings.

“Given our frankly disappointing lack of progress on curtailing inflation, I expect we will be well above 4 percent by the end of this year,” Philadelphia Fed president Patrick Harker said during a 20 October appearance.

“We’re not even sure we’ve got rates high enough to push services inflation down,” Neel Kashkari, Minneapolis Fed president said on 18 October.

TREND FORECAST: As we note throughout this and other Trends Journal’s over the past three weeks, the U.S. Fed will slow down its interest rate hikes. The central bank has been boosting its key rate in the most aggressive campaign of tightening since the early 1980s, including adding three-quarters of a percentage point at each of its last three meetings.

The hikes were intended to reduce spending, slow economic activity generally, including hiring and investment… and bring down inflation which is at an 8.2 percent annual rate. 

Some signs point to inflation already slowing. Commodity prices have fallen, supply chain kinks are loosening, and the housing market has entered a slump.

However, the labor market is still strong, which could continue to push wages higher, raising prices throughout the economy… thus, the slower and lower the interest rates rise, the higher inflation. 

It should also be noted that the United States is most likely getting pressure from other nations to keep interest rates from rising faster since the higher interest rates rise, the stronger the dollar gets and the further other nation’s currencies fall… pushing up their already high inflation higher.