Senior Fed officials are firm in their plans to shrink the economy by raising rates

Senior US central bank officials have sought to stem speculation that the Federal Reserve will give up on the task of putting much more pressure on the economy, warning against being overly enthusiastic about the outlook for inflation despite signs that it has peaked.

Speaking just days after the central bank slowed down pace of tightening his policies and raising the federal funds rate by half a percentage point, the heads of the Federal Reserve offices in New York and San Francisco opposed what they called the “optimistic” view of investors that elevated inflation will be close to redemption in the next year, especially after the recent positive data.

They were joined by Loretta Mester, president of the Cleveland Fed, who was also hawkish about the inflation trajectory and what it would take for the Fed to bring prices back under control.

Although New York Fed President John Williams acknowledged that price pressure was adjust for reliefhe expressed concern that inflation in the “core” services sector, which excludes volatile energy and food costs and reflects the continued strength of the labor market, would prove far more difficult to reverse.

“We have several factors that I think will bring inflation down to 3-3.5% next year, but then the real problem is how we will bring it to 2%. [per cent]’, Williams said Friday in an interview with Bloomberg Television.

San Francisco Fed President Mary Daly stressed that fed there is still “a long way to go” before declaring a victory over inflation, and he said risks remain “upward” in terms of further price pressure. The central bank will continue to squeeze the economy until the inflation job is “well and really done,” she said at an event on Friday hosted by the American Enterprise Institute.

Specifically, Daly said she needed to see basic services inflationafter housing-related expenses are excluded, moderate.

Mester said in an interview with Bloomberg Television that there are only “tentative” signs so far that inflation is starting to stabilize. She said she needs to see “cumulative evidence” before feeling more confident that price pressure is easing.

Most officials expect a federal funds rate of 5.1% to be enough to bring down inflation, according to forecasts released on Wednesday, while a large cohort has signaled it may need to exceed 5.25%. This compares to an average estimate of 4.6% from September when forecasts were last updated.

Mester reiterated that she is supporting a larger-than-average increase in the federal funds rate and maintaining it at a high level until at least the end of 2023.

“We will have to do what is necessary – again restrictive enough – to bring inflation down to 2 percent, and it could be higher than we have recorded,” Williams said, echoing the message. delivered Chairman Jay Powell at his final press conference of the year on Wednesday.

“I’m willing to do more if more is needed,” Daley said when asked how much more restraint the Fed might need for the economy. “We have to be addicted to data. We can project, but then we have to look.”

Investors remain skeptical, however, as traders in the federal funds futures markets continue to bet that the central bank will not need to raise the discount rate above 5 percent. They also bolstered bets that the Fed will ease policy next year and cut rates.

No Fed spokesman was going to cut the rate next year, and the discount rate is expected to fall to 4.1 percent only in 2024.

The European Central Bank’s warning of further rate hikes as it and the Bank of England raised their policy rates sent global stocks crashing Thursday and triggered the S&P 500’s biggest one-day drop since early November. On Friday, the index closed 1.1% lower.