Fed officials keeping big rate hikes on table as Jackson Hole meeting begins

Federal Reserve officials on Thursday were noncommittal about the size of the interest rate increase they will approve at their Sept. 20-21 meeting, but continued hammering the point they will drive rates up and keep them there until inflation has been squeezed from the economy.

Those higher rates could lead to higher joblessness and are already starting to crimp household and business spending, Kansas City Federal Reserve president Esther George said on CNBC, but the central bank will not flinch from tighter policy.

George said it remained “too soon to say” whether a half-point- or three-quarter-point rate increase would be most appropriate at the September meeting.

However, she said, “our charge is pretty clear, to bring inflation back to our target” by raising interest rates high enough to fix what she called a “fundamental imbalance” between the demand for goods and services and the economy’s ability to produce or import them.

In an interview with Bloomberg, she said the target federal funds rate may ultimately need to exceed 4% to get the desired impact, and may need to remain high for some time.

“I think we will have to hold — it could be over 4%. I don’t think that’s out of the question … You won’t know that, I think, until you begin to watch the data signs.”

Philadelphia Fed president Patrick Harker had a similar message in comments to CNBC, though he appeared to see policy rates topping out a bit lower than George.

“I’d like to see us get to, say, above 3.4% — that was the last median in the SEP (Summary of Economic Projections) — and then maybe sit for a while,” Harker said. “I am not in the camp … of taking rates up and then way down.”

As for next month’s decision, he said, he’ll need to see what the next inflation report shows. “Whether it’s 50 or 75, I can’t say right now,” Harker said, adding that in the context of a historical record where quarter-point rate hikes have been the norm, even a half-point hike is a “substantial” move.

The Fed has raised rates at each of its meetings beginning in March, with the federal funds rate currently set in a range between 2.25% and 2.5%. The last two increases were in three-quarter-point increments, and Fed officials must now decide whether to sustain that pace or reduce it.

The interviews with George were broadcast ahead of the kickoff Thursday night of the Kansas City Fed’s annual research symposium at Jackson Hole, Wyo., held as a live event for the first time since 2019.

Fed Chair Jerome Powell addresses the conference on Friday in remarks expected to summarize where he feels the Fed stands in its fight to control the worst outbreak of inflation in 40 years.

He will have longer-term expectations to manage about how high the Fed thinks rates may need to rise, how long they will need to stay there, and how the Fed might react if the economy weakens more than expected.

But there is also shorter-term focus on what the Fed will do when it meets in just under four weeks.

In an interview with the Wall Street Journal, Atlanta Fed president Raphael Bostic said “at this point, I’d toss a coin” to decide between a half-point versus a three-quarter-point rate increase.

The Fed gets two more key inflation reports and more jobs data before the September meeting, including the last reading of the personal consumption expenditures price index on Friday, and the August jobs report in a little over a week. An update on second-quarter gross domestic product showed the economy contracted less than initially thought from April through June.

If the numbers remain strong, “then it may make a case for … another 75-basis-point move,” Bostic said. He added he would be “resolute” in keeping rates high and “resist the temptation” to cut them until inflation was “well on its way” to the Fed’s 2% target.