Fed to set rate hike step with inflation in mind: Fed chiefs

SAN FRANCISCO/ATLANTA, Jan 10 (Reuters) – The pace of the Fed’s monetary policy tightening could be cut to 25 basis points at its upcoming meeting, but the decision will depend on fresh inflation data this week, Fed officials said. Atlanta Fed chief Rafael Bostic told reporters on Monday that if the U.S. consumer price index on Thursday confirms the trend of cooling inflation that is seen in monthly labor statistics, then he will be forced to consider raising the rate by a quarter of a percentage point more seriously and move in this direction. “Ultimately, I want us to get to 25 (bp),” he said. “The exact timing of this will depend on the incoming data.” The head of the San Francisco Fed, Mary Daly, in turn, in an interview with the Wall Street Journal noted that she does not rule out a rate hike by both 25 bp and 50 bp. Daley, like her colleague Bostic, believes that the Fed’s key rate, which is currently set at 4.25%-4.5%, should rise to a range of 5%-5.25% to effectively fight inflation. According to Daly, the gradual movement to this level provides an opportunity to respond to incoming information and take into account the delayed effect of higher borrowing costs on the economy as a whole. “I want to build on the data and not discount the 50bp rise,” the San Francisco Fed chair said, adding that this week’s CPI report will focus on the cost of basic services excluding housing – that’s the area where inflation is most firmly entrenched. Minutes from the Fed’s previous meeting in December showed that officials weren’t considering cutting rates in 2023. This is contrary to market expectations that the Fed could start cutting rates by the second half of this year, as expected in response to a slowdown in the economy. On Monday, Bostic said his overall vision is not for rate cuts, including in 2024, although he does not rule out amendments to the scenario. Thus, Bostic has become one of the most hawkish Fed managers, while the majority in the regulator’s leadership expect the key rate to be cut to below 4.5% next year. Daley predicts that as the Fed tightens policy, the U.S. unemployment rate, currently at 3.5%, will rise to around 4.5% or 4.6%, and inflation, currently held at 5.5%, according to the Fed’s preferred target, will drop to just above 3% by the end of 2023 and close to 2% in 2024. The original message in English is available at the code: (Ann Safir and Howard Schneider)

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