"Interest Rate Cuts Only in 2024..." Fed Flooded with Hawkish Remarks

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joselgina] "We need to raise rates further." Officials of the U.S. central bank, the Federal Reserve (Fed), once again doused expectations of a monetary policy pivot that had emerged alongside the so-called 'inflation peak theory.' They pointed out that the benchmark interest rate hikes will continue at least through 2023, and even afterward, a high rate in the 5-7% range must be maintained for a considerable period. The rate cuts that the market has been anticipating are expected to be discussed only in 2024.

John Williams, President of the New York Federal Reserve Bank and the third-ranking Fed official, stated at an online event hosted by the New York Economic Club on the 28th (local time) that "there is still work to be done," emphasizing the need to maintain a tight monetary policy stance.

President Williams did not dismiss the market expectation that the Fed might ease the pace of rate hikes to 0.5 percentage points at the final Federal Open Market Committee (FOMC) meeting of the year on November 13-14. If the Fed, which has taken four consecutive giant steps (0.75 percentage point rate hikes), takes a big step (0.5 percentage point hike) next month, the U.S. interest rate will reach 4.25-4.5%.

However, Williams made it clear that even with this pace adjustment, the Fed's rate hike trajectory will not end anytime soon. He said, "Labor and service demand exceed supply, so it will take a considerable time to stabilize inflation," adding, "We need to raise rates further. It is necessary to maintain a restrictive level at least until next year." He also predicted that nominal rate cuts would only be possible in 2024.

James Bullard, President of the St. Louis Federal Reserve and a prominent hawk within the Fed, also reaffirmed his previous forecast of a terminal rate of 5-7% during a webinar hosted by Barron's. Bullard emphasized, "Rates will need to be kept above 5% until 2024," and "We must continue an aggressive stance until inflation falls to the 2% target." He criticized the market's pivot expectations, saying, "The market somewhat underestimates the risk that the FOMC will have to be more aggressive to curb U.S. inflation."

Loretta Mester, President of the Cleveland Federal Reserve, also assessed in an interview with a foreign media outlet that the Fed is not yet near pausing rate hikes. Mester said, "Considering that we have entered a restrictive territory, we can slow the pace and assess the effects," but added, "Stopping tightening too early will cost more. I do not think we will stop (raising rates) soon."

These hawkish remarks from Fed officials are particularly notable as signals confirming that soaring inflation has peaked amid recent recession concerns. Despite some positive signs, this is essentially the Fed's warning that the so-called war against inflation will continue through 2024. Lael Brainard, the Fed's second-ranking official and Vice Chair, also pointed out in a published article that inflation risks remain significant due to a series of supply shocks.

This assessment is not limited to the Fed. Christine Lagarde, President of the European Central Bank (ECB), said on the same day that even if the economy slows due to inflation and other factors, interest rate increases will continue for the time being.