Prices for fruits and vegetables will be displayed in stores in Brooklyn, New York on March 29, 2022.
Andrew Kelly | Reuters
A Federal Reserve official welcomed Thursday’s news that last month’s rise in inflation was weaker than expected and said interest rate gains could slow going forward.
But they also cautioned against getting too excited about the data, saying the price is still too high.
San Francisco Fed President Mary Daly said, “One month of data doesn’t mean you win. I think it’s very important to think that this is just one piece of positive information, but we’re looking at a series of We’re looking at all the information,” he said. During a question and answer session with the European Center for Economic and Financial Affairs.
Daly and other Fed officials were speaking after the Bureau of Labor Statistics reported that the consumer price index rose 0.4% in October, below the Dow Jones estimate of 0.6%. The data could indicate that while inflation is still high, price gains may plateau and fall soon.
The market held a massive rally following the report, with the Dow Jones Industrial Average soaring over 1,000 points. Yields on his policy-sensitive two-year Treasury bonds fell 30 basis points (0.3 percentage points) to 4.33%.
Daly said the report was “certainly good news,” but noted that inflation at 7.7% a year was still too high and far from the central bank’s 2% target.
“Better than Over 8” [percent] But it’s never close to 2 for me to be comfortable.
Similarly, Cleveland Fed President Loretta Mester said Thursday’s report “suggests some moderation in overall and core inflation,” but the trend remained “acceptable.” It’s unreasonably high,” he said.
Kansas City Federal Reserve Governor Esther George said inflation was still “uncomfortably close” to a 41-year summer high, even if month-to-month inflation slowed.
“Inflation is still rising and likely to continue, so monetary policy clearly has work to do,” he said.
But he advocated a more “cautious” approach going forward, noting that “this is a particularly critical time to avoid contributing too much to financial market volatility.”
Mester and George are voting this year as members of the Federal Open Market Committee, which sets rates.
Market price with lower markup
Market prices immediately reacted to the CPI news with a large shift to a potential 0.5 percentage point increase in December. CME Group data We are looking for an 85.4% probability of a 0.5 point rate hike.
“Despite previous developments, inflation has consistently proven to be more persistent than expected, and given the considerable costs of sustained high inflation, we are currently , we believe the greater risk stems from too little tightening.”
Other officials were also cautious.
Dallas Fed President Laurie Logan called the CPI release a “welcome relief” but said further rate hikes were likely, albeit at a slower pace. “Slowing the pace of rate hikes may soon be appropriate so that we can better assess how financial and economic conditions are evolving,” she said.
No rate cut in sight
Like Daily, Logan said the public should not interpret the slowing pace of rate hikes to mean policy easing.
In particular, Daly said rates were likely to stay high for longer and did not expect a rate cut indicated by market pricing could occur as early as September 2023.
Philadelphia Fed President Patrick Harker said on Monday that the pace was likely to slow, but said the rally would still be significant.
Historically, the U.S. central bank has favored rate hikes in quarter-point increments, but the sharp rise in inflation and policymakers’ slow reaction when prices began to surge in early 2021 , now needed a more aggressive pace.
“In the coming months, we expect the pace of rate hikes to slow as we approach a sufficiently restrictive stance given the cumulative tightening achieved. It is still important,” Harker said.
He added that he expects policy to be “maintained at a restrictive interest rate” while the Federal Reserve (Fed) assesses the impact of the move on the economy.
