Fed Officials Keep Elbow Room For Over 5% Policy Rate On Sticky Inflation: 'Seems To Be Right Kind Of Framing'

Federal Reserve officials reportedly said on Tuesday the central bank will have to keep gradually raising interest rates to rein in inflation and suggested sticky price pressures led by a strong jobs market may push borrowing costs higher than they once anticipated.

New York Fed President John Williams told reporters in New York that there are risks inflation stays higher for longer than expected given the strength in the labor market, according to a Reuters report. He added that ending the year with the benchmark overnight interest rate between 5% and 5.5% “seems to be the right kind of framing” for the policy outlook.

Also Read: Best Penny Stocks

Major Wall Street indices closed in the red after the consumer price index released on Tuesday showed inflation increased 0.5% in January, with an annual gain of 6.4%, against the consensus estimate of 6.2%. The rise in the number was led by higher food and gasoline prices as well as rents.

The SPDR S&P 500 ETF Trust SPY closed 0.046% lower while the Invesco QQQ Trust Series 1 QQQ gained 0.74%.

Stopping Point: Dallas Fed President Lorie Logan said with an “incredibly strong” labor market pushing up wages and keeping inflation elevated, the central bank should not lock in a stopping point for rates just yet.

“We must remain prepared to continue rate increases for a longer period than previously anticipated, if such a path is necessary to respond to changes in the economic outlook or to offset any undesired easing in conditions,” Logan said while speaking at Prairie View A&M University near Houston, Texas.

Richmond Fed President Thomas Barkin told Bloomberg that inflation is normalizing but it’s coming down slowly. “I just think there’s gonna be a lot more inertia, a lot more persistence to inflation than maybe we’d all want,” he said.

Philadelphia Fed President Patrick Harker said on Tuesday the inflation news did not alter his view the policy rate will have to rise above 5%.

However, Harker stated the Fed was “likely close” to reaching a sufficiently high enough level to pause.

Read Next: Warren Buffett’s Berkshire Hathaway Bites More Into Apple Stock In Q4 — Makes Massive Stake Sale In Chip Company