Fed Hawks And Doves Stay The Course On Rate Hikes To Cool Prices

Fed Hawks and Doves Stay the Course on Rate Hikes to Cool Prices

(Bloomberg) -- Federal Reserve officials from both the hawkish and dovish wings of the US central bank confirmed their determination to raise interest rates, even as business contacts report US economic growth shifting into a lower gear.

Dove Mary Daly of the San Francisco Fed and her more hawkish colleague James Bullard of St. Louis both backed a plan to raise rates by 50 basis points this month and next to counter the hottest inflation in 40 years, while Richmond's Thomas Barkin said it made “perfect sense” to tighten policy.

Their remarks on Wednesday came as the Fed's Beige Book survey reported the pace of growth downshifting, with four of the central bank's 12 districts noting that growth had slowed, and as JP Morgan Chase & Co. Chief Executive Officer Jamie Dimon warned investors to prepare for an economic “hurricane.”

Some Fed officials said the economy is still strong and the most pessimistic outcomes may be avoided.

“Right now what I'm hearing is people investing, consumers spending. You can't find a recession in the data, and you can't find it in the actions of executives,” Barkin said in an interview on Fox Business. “I grew up in Florida. I learned you always prepare for hurricanes. But a lot of them pass and don't hit you.”

The Fed raised rates by half a percentage point at its May meeting and signaled it'll do so again at the next two as officials move quickly to increase rates to the neutral level that neither speeds up nor slows down economic activity.

“I certainly am comfortable to do what it takes to get inflation trending down to the level we need it to be,” Daly said Wednesday in an interview on CNBC. “What the Fed needs to do -- and this is how I am thinking about the economy -- is remove the accommodation, but then be open to the data, be data-dependent.”

Policy makers want to cool the economy and get demand into better alignment with pandemic-crimped supply that's lifted inflation to the hottest levels in 40 years. Their efforts may be starting to yield results.

Economic activity and price gains may be moderating in parts of the country as households and businesses navigate higher rates, the Russian invasion of Ukraine and ongoing disruptions from Covid-19 infections, the Beige Book report showed.

“Four districts explicitly noted that the pace of growth had slowed since the prior period,” it said. Business contacts in several districts reported becoming more cautious as their outlooks grew more pessimistic.

Bullard played down the findings, telling reporters that it was “natural” to see activity moderate.

“We would expect growth to be slowing to a pace that is more consistent the longer term potential growth rate of the US economy, which many economists put at 1.75% to 2%,” he said, when asked to comment on the Beige Book's findings. “We have certainly been growing well above that over the last year or more. So I think it's natural to expect slower growth.”

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