Fed officials see “eye-catching” inflation data in the rear view after slowing in December

Inflation pressures eased again in December, giving some Fed officials more confidence that a continued slowdown in interest rate increases was justified.

In the last month of 2022, it shows inflation as measured by the Consumer Price Index Prices have increased by 6.5% compared to last year While it decreased by 0.1% from the previous month.

Philadelphia Fed President Patrick Harker said Thursday morning that he expects “eye-catching” inflation readings for 2022 to be behind us, and that it makes sense to slow the pace of rate hikes.

“I expect we will raise rates several more times this year, although, in my opinion, the days of us raising them 75 basis points each time have certainly passed,” Harker said in remarks prepared ahead of the Malvern CPI report. , Pennsylvania. “In my view, 25 basis point increases would be appropriate going forward.”

NEW YORK, NY - SEPTEMBER 27: Philadelphia Federal Reserve President Patrick Harker visits

Philadelphia Fed President Patrick Harker in New York City, September 27, 2019 (Photo by John Lambarsky/Getty Images)

In a separate appearance Thursday, St. Louis Federal Reserve Bank President James Bullard called the latest CPI report “encouraging,” but said inflation remains elevated, suggesting he may favor another 50 basis point rate hike at the meeting. The next policy of the Federal Reserve.

“I like the front-loading policy,” Bullard said at the Wisconsin Association of Bankers’ Midwest Economic Outlook Forum. “I think if we want to get to the low 5% range [for the Fed funds rate] That we have to move on and move to that level… I don’t see the point of dragging things out through 2023.”

Bullard said that while the December CPI number was encouraging, “I think we have a lot of work to do as the Fed in order to make sure we keep inflation down going forward.”

President of the Federal Reserve Bank of St. Louis, James Bullard, speaks during a break in a conference on monetary policy at the Hoover Institution of Stanford University, in Palo Alto, California, US May 6, 2022. Photo taken May 6, 2022. Photograph: Ann Saffer - Reuters

President of the Federal Reserve Bank of St. Louis, James Bullard, speaks during a break in a conference on monetary policy at the Hoover Institution at Stanford University, in Palo Alto, California, US, May 6, 2022. Photo taken May 6, 2022. REUTERS/Anne Saffer

Fed Raising interest rates by 0.50% after the December monetary policy meeting, slowing after four consecutive rate hikes of 0.75%. In 2022, the The Federal Reserve raised interest rates by a cumulative 4.25%or 425 basis points.

data from CME group on Thursday Shows a 91% probability that the Fed will raise interest rates by 0.25% at the close of the next policy meeting on February 1.

At some point this year, Harker said, he expects the interest rate to be constrained enough to keep the Fed holding rates in place to allow monetary policy to do its work.

The consumer price index fell by a tenth of a percent month-over-month in December and rose 6.5 percent year-on-year — a slowdown from 7.1 percent in November, Data from the Bureau of Labor Statistics showed on Thursday.

Excluding volatile energy and food prices for the Fed’s so-called “core” figure, core CPI rose 0.3% in December, after rising 0.2% in November. On a yearly basis, core CPI rose 5.7%, down from 6% in November.

The key metric the Fed is focusing on – services inflation excluding housing – rose 0.4% month over month and 7.4% year over year in December. The Fed sees basic services inflation being driven by a strong labor market and wage growth.

Continued wage growth could keep service inflation in 2023, December notwithstanding Slowing wage growth Welcomed by the Fed, this data does not yet point to a broader slowdown in the labor market.

After Thursday’s inflation data, Roberto Perelli, head of global policy at Piper Sandler, said that even as rate increases continue to slow, the Fed may not be convinced to give up the pace of its recent 0.50% rate hikes.

“I’m reluctant to bet on the farm at 25 basis points,” Burley said. “Pre-shelter essential services are still up, and as a result I think 50 basis points is still on the table. But also because in minutes from [last meeting]FOMC said they are not satisfied with how the market interrupts our reaction function. So if there’s a way the FOMC can think of to get the market to believe more in the hard reaction function, it would be to do 50 basis points.”

Burleigh also sees Thursday’s report as keeping the Fed on track to raise interest rates above 5%, as set at the December policy meeting.

“This latest report adds more weight to our view that CPI inflation will fall more quickly than the Fed expects this year,” Paul Ashworth, an economist at Capital Economics, wrote in a note to clients Thursday. “But the Fed will not stop raising interest rates until it sees accompanying evidence of softening labor market conditions and wage growth. It will take another two months before that evidence also becomes irrefutable.”

Earlier this week, Federal Reserve Chairman Jerome Powell stressed the Fed’s commitment to lower inflation, and advocated for the central bank to raise interest rates when necessary even if it is unpopular.

Powell In a speech on the independence of the central bank That “Restoring price stability when inflation is high can require actions that are uncommon in the short term because we raise interest rates to slow the economy.”

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