WASHINGTON: Federal Reserve (Fed) vice chair of supervision Michael Barr on Thursday (Dec 1) signalled that he is among US central bankers backing a slowdown in the pace of interest rate increases as soon as the Fed’s Dec 13-14 meeting.
“Now we’re at a point, since I believe we’re in restrictive territory, that we can get to a sufficiently restrictive rate at a slower pace,” Barr said at the American Enterprise Institute. “I imagine we’re going to be considering this. And I think that’s smart; it’ll give us space to begin to modulate a bit and then think about, again, what that rate is, how high it needs to be, how long we need to keep it at that rate in order to get the job done.”
The Fed raised its policy rate in 75-basis-point increments at each of its last four meetings, bringing the short-term overnight lending rate to a 3.75%-4% range in the steepest set of rate increases since the 1980s.
The sharply higher borrowing costs are aimed at slowing the economy, curbing demand and easing price pressures that have pushed inflation by the Fed's preferred gauge to 6%, triple its 2% target.
Fed chair Jerome Powell on Wednesday signalled the central bank would likely raise rates by a smaller half-a-percentage point at its next meeting, as policymakers find their way to a sufficiently restrictive level to bring down inflation without going too far and crashing the economy with overly tight policy.
Barr’s comments aligned closely with Powell’s, which sparked a stock-market surge as investors cheered what they heard as a dovish message that the current round of policy tightening would end sooner than thought.
Barr pushed back on that interpretation on Thursday, saying “it’s a misreading to think about a change in the pace of increases as reflecting a change in the seriousness of the project” of bringing inflation down.
“I think that the rate is going to have to stay high for a long period of time, and that’s because it’s going to take us a long period of time to really bring inflation down to 2%,” he said.
Most of the hour long event with Barr focused on financial supervision and the banking industry, his main focus as the Fed’s top Wall Street regulator.
Separately, New York Federal Reserve president John Williams reiterated on Thursday in a television interview his belief that more interest rate rises will be needed to bring down overly high levels of price pressures.
“I still think we have a ways to go in terms of where the fed funds target is and where we need to get it to next year in order to get the sufficiently restrictive stance” of monetary policy needed to lower price pressures, he said in a Fox Business Network interview.
As to whether the Fed can raise rates next month in an increment smaller than 75 basis points, Williams was non-committal, but noted “slowing the pace” of rate rises would simply mean “maybe stepping down one step” in the effort to get rates up to the level needed to cool price pressures.
He said it is possible the Fed may find space to lower rates in 2024.
Williams spoke on the same day the government released data showing a moderation in inflation. In October, the Fed’s preferred price pressure gauge rose by 6% from the same month a year ago, down from the 6.3% annual rise seen in September.
“Inflation, first of all, is the number one problem we’re facing in terms of monetary policy. It is far too high,” Williams said.
Lowering inflation back to 2% will “take a good couple of years”, he said.
But he added: “I expect to see a pretty significant decline in inflation next year as supply chain issues improve, as we see the slowing economy, the economy getting into better balance.” – Reuters
