Two Federal Reserve officials said Friday that they expect further interest rate hikes, but will carefully consider whether those moves should be as aggressive as they have been this year.
Regional Chairman Thomas Barkin of Richmond and Susan Collins separately said the Fed is entering a new phase that will examine just how restrictive policy needs to be.
In remarks to CNBC, Barkin said the rate hikes have taken politics to where the Fed has now shifted from foot on gas pedal to brake. The new phase means policymakers will sometimes “pump the brakes” and “act a bit more defensively”, he said.
“I’m willing to do that, and I think it probably involves a slower rate of increase, a longer rate of increase, and a potentially higher point,” he said in an interview in live “Squawk on the Street”.
Barkin added that he could see the federal funds rate — used as a benchmark for short-term borrowing — rise above 5% from its current target range of 3.75% to 4%.
Market prices rose on Friday to a potential “terminal rate” of 5.14%, which would be the highest level since mid-2007. The Fed on Wednesday approved a fourth straight hike of 0.75 percentage points and signaled more hikes are to come.
“We need to get inflation back on target and we need to do whatever we need to do with rates to get inflation back on target,” Barkin said. “It’s totally conceivable for me, we would end up going over 5%. But for me, it’s not a plan, it would be the result of our efforts to try to keep inflation under control.”
Similarly, Collins stressed the need to tackle inflation, while weighing the impact of Fed policies against easing rate hikes too quickly.
“Policy has quickly moved into restrictive territory, but there is still work to be done. In this next phase of policymaking, my focus shifts from rapidly increasing rates to determining the level that the funds rate should achieve to be restrictive enough to achieve desired results,” she said in prepared remarks. “It recognizes that the risks of inflation falling too slowly and inflation weakening too quickly economy become more balanced.”
Collins is a voting member of the Federal Open Markets Committee responsible for setting rates, but Barkin is not.
The two officials spoke on the same day the Labor Department reported nonfarm payrolls in October rose by 261,000, well above the 205,000 estimate, and average hourly earnings rose. 4.7% from a year ago, below the rate of inflation and well above the Fed. 2% inflation target.
Collins noted that the report was consistent with the idea that businesses continue to need workers even as demand slows. She added, however, that “as policy tightens further, the risks of over-tightening increase.”
She said she doesn’t think a “significant slowdown” in the economy is needed to bring inflation down.
“Therefore, it will be increasingly important to balance the risk of slowing demand in the economy too much, with the risk of letting inflation persist for too long and possibly unanchoring inflation expectations,” he said. she declared.
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