Federal Reserve officials won't relent on path to 4.5% and may move higher

On course for 75-bp increase next month; rate headed to 4.5-4.75% by next yr

The Federal Reserve is closing ranks around a goal of quickly raising their benchmark interest rate to around 4.5 per cent then holding it there, while being prepared to go higher if elevated inflation fails to show signs of easing.

The aim, which is widely shared among the US central bank’s 19 policymakers, suggests they are on course to deliver a fourth straight 75-basis-point rate increase next month. The impact on energy prices of OPEC oil production cuts and a strong September jobs report bolster the case, which could get a further boost from fresh inflation data on October 13.

“We look to me, according to our reports, headed for 4.5 per cent to 4.75 per cent by sometime next year,” Chicago Federal Reserve Bank President Charles Evans, traditionally one of the central bank’s more dovish members, told business leaders on Ocober. 6. The Fed’s current target range for its benchmark rate is 3 per cent to 3.25 per cent.

The Fed’s strategy is sensitive to data, but officials have made plain that it would take a lot to push them off the path to 4.5 per cent —  Policymaker after policymaker pushed back during the week against investor bets that recession risks or even financial market volatility could deter them.

“Until we see any signs of inflation beginning to moderate, I don’t know how we pause,” Fed Governor Christopher Waller said at the University of Kentucky October 6.

While there is optimism that the case for less inflation is starting to emerge, there is also a sense that this a war the Fed can’t lose — even at the risk of a downturn in the economy.

Officials’ September forecasts show six who expect the rates to move to a 4.75 per cent to 5 per cent range next year, a view that will likely gain traction if price pressures don’t relent as hoped.