Fed likely to hike rates even higher

Fed policymakers stressed on Monday that they will raise borrowing costs further to curb inflation, though one mused about a path to eventual rate cuts while another said investors are underestimating chances the central bank could go higher than expected.

“I do see a point, probably in 2024, that we’ll start bringing down nominal interest rates because inflation is coming down and we would want to have real interest rates appropriately positioned,” said New York Fed President John Williams, who also serves as vice chair of the policy-setting Federal Open Market Committee.

At a separate event, St. Louis Fed President James Bullard, one of the central bank’s most hawkish officials, said he thinks “markets are underpricing a little bit the risk that the FOMC will have to be more aggressive rather than less aggressive in order to contain the very substantial inflation that we have in the US.”

Financial markets fluctuated after the comments, with U.S. stocks ultimately remaining lower and Treasury yields moving higher.

Fed officials have signaled they plan to raise their benchmark rate by 50 basis points at their final meeting of the year on Dec. 13-14, after four successive 75 basis-point hikes. Policymakers could also raise their forecasts — though it’s not clear by how much — for how high interest rates will eventually go when they update their economic projections during the meeting.

The main rate is currently in a target range of 3.75 percent to 4 percent.

While the latest projections, from September, do show Fed officials expect interest-rate cuts in 2024, policymakers have largely shied away from discussing forecasts that far out, instead focusing on the need to raise rates and keep them elevated to ensure inflation falls.

Also, Cleveland Fed President Loretta Mester said in an interview with the Financial Times, published Monday, that the central bank wasn’t yet near a pause in its ratehike campaign.