THE KEY POINTS:
-Thomas Barkin and Susan Collins, the regional Fed presidents, both said on Friday that they believe additional interest rate hikes are necessary but may not be at such a rapid pace.
-The result, according to Barkin, "is probably going to be a slower pace of increases, a longer pace of increases, and a potentially higher point."
-Collins stated that the Fed must weigh the risks of excessive tightening versus prematurely abandoning the battle against inflation.
Two Fed officials said on Friday that they anticipate additional rate hikes but will carefully consider whether they should be as pronounced as they have been this year.
Both Susan Collins and Thomas Barkin, the regional president of Richmond, stated that the Fed is entering a new phase where it will be determining what level of restrictive policy is necessary.
According to comments Barkin made to CNBC, the Fed has now changed its policy from putting its foot on the accelerator pedal to the brake as a result of the rate hikes. According to him, the new phase will cause policymakers to "pump the brakes occasionally" and "act a little bit more defensively."
During a live "Squawk on the Street" interview, he said, "I'm prepared to do that, and I think the implication for that is certainly a slower pace of increases, a longer pace of increases, and a potentially higher point."
The fed funds rate, which is regarded as a benchmark for short-term borrowing, might rise beyond 5% from its existing target range of 3.75%-4%, according to Barkin.
Pricing on the market increased on Friday, reaching a theoretical "terminal rate" of 5.14%, which would represent a high point since mid-2007. The Fed authorized a 0.75 percentage point hike on Wednesday for a fourth straight time and hinted at additional increases in the near future.
In order to bring inflation back to target, we must first bring it down to the desired level, according to Barkin. "To me, it is completely plausible that we would wind up over 5%. However, in my opinion, that is not a plan; rather, it is the result of our efforts to try to manage inflation.
Collins emphasized the necessity of combating inflation while also assessing the impact of the Fed's measures against premature rate hike relaxing.
"Policies have swiftly entered the realm of restrictions, but there is still work to be done. She stated in prepared remarks, "My focus is shifting from assessing the level that the cash rate must reach to be suitably restrictive to achieve the desired goals in this next phase of policymaking. This acknowledges the growing balance between the risks of inflation falling too slowly and the economy contracting too swiftly.
Barkin does not have voting privileges on the Federal Open Markets Committee, which sets interest rates.
Both representatives spoke on the same day that the Labor Department reported that nonfarm payrolls increased by 261,000 in October, exceeding the 205,000 estimate, and that average hourly earnings increased 4.7% from a year earlier, exceeding both the Fed's target of 2% inflation and the inflation rate.
Collins pointed out that the findings supported the notion that businesses still need employees despite a decrease in demand. However, she continued, "the dangers of overtightening increase when policy is tightened more."
She claimed that in order to reduce inflation, the economy did not need to experience a "major downturn."
As a result, she added, it would become more crucial to strike a balance between the risk of potentially slowing down the economy's demand too much and the risk of letting inflation persist for too long and maybe destabilizing inflation expectations.
Comments