Jobs report shows why more rate hikes are needed – WIZM 92.3FM 1410AM

WASHINGTON (AP) — The strong U.S. jobs report for October underscores why the Federal Reserve needs to raise interest rates higher than previously expected in order to control inflation, said Friday Neel Kashkari, president of the Federal Reserve Bank of Minneapolis.

In an interview with The Associated Press, Kashkari said that at the Fed’s next meeting in December, he plans to issue a higher forecast for the central bank’s benchmark rate next year than he does. did in September. He declined to specify the rate he envisaged for 2023.

Friday’s jobs data showed hiring is “pretty healthy” despite some slowdown in recent months, Kashkari said.

“It tells me that we still have work to do to try to cool the economy and balance supply and demand,” he added.

The Fed has raised its short-term policy rate six times this year, the last four times by an unusually high three-quarters point, in a strenuous effort to rein in inflation. Prices are accelerating at nearly the fastest rate in four decades.

To achieve this goal, the central bank hopes to moderate consumer and business spending, slow hiring and reduce economic growth. Still, the risk is growing that the Fed could go so far as to tip the economy into a recession.

Kashkari generally supported higher rates. He has taken a hawkish line with inflation this year, having expressed more dovish sentiments in the past. (“Hawks” generally support higher rates to curb inflation, while “doves” generally prefer lower rates to support hiring.)

On Wednesday, after the Fed’s latest policy meeting, Chairman Jerome Powell opened the door to smaller rate hikes in the months ahead. He added that a half-point hike could come at the Fed’s next meeting in December or early next year.

But Powell also warned that the Fed would likely raise its key rate higher than it had expected in September – a sentiment Kashkari echoed on Friday.

Every quarter, the Fed publishes economic and political projections. In September, central bank officials expected to raise their short-term rate to around 4.6% by the end of 2023. It now sits in a range of 3.75% to 4%, its all-time high. level in 14 years.

“I had interest rates in September peaking at around 4.9% in the March-April (2023) period,” Kashkari said in the interview. “Given what I know right now, I would expect to go higher than that. How much higher than that, I don’t know.

After its Wednesday meeting, the Fed said in a statement that when making decisions on future rate hikes, it would take into account the impact of its previous increases and the fact that it may take time for rates to rise. Fed policies affect the economy.

Economists saw this as an acknowledgment that previous Fed increases have yet to have their full impact and that Fed officials are more willing to give their policies time to work, rather than rack up bigger rate hikes.

“The Fed is starting to come out of a corner,” said Claudia Sahm, founder of Sahm Consulting and former Fed economist. References in the Fed’s Wednesday statement to lags between its rate hikes and their impact “were an acknowledgment that ultimately what they did should have a noticeable effect on inflation next year.”

Kashkari said he doesn’t think another three-quarter point rise in December is “out of order”. But he also said the Fed had taken significant steps to fight inflation and that it was appropriate to consider a slower rate of increase.

“Four (three-quarter point rises) in a row is a lot of tightening in a short time,” he said. “At some point it will be appropriate to step down” at a half point and then at some point after that at a quarter point, Kashkari added.

Powell said Wednesday that the Fed would not need to see signs of falling inflation to scale back its rate hikes. But Kashkari said upcoming employment and inflation data would affect his decision.

The Minneapolis Fed chairman noted that there were signs that inflation could ease next year, such as a marked slowdown in home sales and lower rent increases. But he also said he saw no evidence that underlying inflation – which is driven more by rising wages and prices for services, such as medical care – is improving.

That’s why Fed officials would generally like to see some weakening in job and wage growth.

“We want people to find jobs,” Kashkari said. “But for me, we also need to see evidence that the labor market is softening at least a bit. I don’t see much evidence of this.

Separately, Susan Collins, the new chairwoman of the Boston Federal Reserve, said in remarks Friday that October’s strong jobs report doesn’t necessarily signal a strong economy.

Consumer spending measures and employment data “may send somewhat different signals as businesses’ need to fill vacancies may persist even with some slowdown in demand,” Collins said, as some industries have even fewer jobs than before the pandemic. “The continued above-trend payroll growth in this morning’s October jobs report is consistent with that view.”

Collins also said, regarding rate hikes, that “smaller increases will often be appropriate” in future meetings.

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