Federal Reserve Chair Jerome Powell has hinted that perhaps it is time for the Fed to slow the pace of coming rate hikes ahead of the central bank’s next meeting on 13 to 14 December.
Speaking at the Bookings Institute in Washington this week, Mr Powell said, “The time for moderating the pace of rate increases may come as soon as the December meeting”.
“Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level,” Mr Powell explained.
But while the Fed might be looking to ease its foot off the pedal, rates are still expected to increase by 50 basis points (bps), after four consecutive 75 bps lifts, as the bank looks to position rates at a level that is sufficiently restrictive to return inflation to 2 per cent.
“There is considerable uncertainty about what rate will be sufficient, although there is no doubt that we have made substantial progress, raising our target range for the federal funds rate by 3.75 percentage points since March,” Mr Powell said and acknowledged that rates are likely to reach a somewhat higher level than estimated in September.
Noting that “clear progress” on slowing inflation has yet to be seen, Mr Powell said: “It is likely that restoring price stability will require holding policy at a restrictive level for some time.”
“History cautions strongly against prematurely loosening policy. We will stay the course until the job is done.”
Summing up the economic conditions that the Fed thinks it needs to bring inflation down to 2 per cent, Mr Powell said the trend of slowing economic activity needs to be sustained.
In Australia, the landscape remained fairly different, with inflation surprising to the downside in October and slowing to a 6.9 per cent rate of growth, compared to a predicted lift of 7.6 per cent, following seven consecutive rate hikes by the Reserve Bank of Australia (RBA). Unlike in the US, in Australia, the RBA’s monetary interventions appear to be yielding results.
Commenting on the widely unexpected inflation figure, AMP’s Dr Shane Oliver said, “The slowdown in monthly inflation is good news”.
However, the inflation figure is based on relatively new monthly data that excludes roughly one-third of consumer price index components, such as gas and electricity prices.
While he urged caution, Dr Oliver said that if two-thirds of the CPI are slowing down “it’s still a good sign and adds confidence to our view that we are getting near the top in interest rates”.
“It’s possible the RBA may pause next week,” Dr Oliver said, but he acknowledged that the most likely scenario is a hike of 0.25 per cent.
According to him, the RBA would be cautious about reading too much into the monthly CPI amid strong wages and jobs data.
“The slowdown in monthly inflation means a 0.5 per cent is most unlikely, though. We see the top in the cash rate being 3.1 per cent, or if not then 3.35 per cent,” Dr Oliver said.
