Fed officials warn of additional interest rate hikes to fight inflation

A chorus of Federal Reserve officials are laying the need for further interest rate hikes in the coming months as they try to wrestle abnormally high inflation under control, even if it means slowing economic growth and raising unemployment. 

Several policymakers this week endorsed the central bank's aggressive trajectory, disclosed after its two-day meeting last week. The outline shows the benchmark federal funds rate climbing to 4.4% by the end of the year, indicating that at least one more 75 basis point increase is on the table either in November or December. 

"This is a serious problem, and we need to be sure we respond to it appropriately," St. Louis Fed President James Bullard said during an economic conference in London on Tuesday. "We have increased the policy rate substantially this year and more increases are indicated."

Ballard's sentiment was echoed by Chicago Fed President Charles Evans and Minneapolis Fed President Neel Kashkari, who said the central bank needs to deliver on its promised rate increases and hold rates there until inflationary pressures start to ease.

FED RAISES INTEREST RATES BY 75 BASIS POINTS IN ANOTHER HISTORIC MOVE TO TACKLE INFLATION

"We are moving very aggressively," Kashkari said Tuesday during an event hosted by The Wall Street Journal. "There’s a lot of tightening in the pipeline. We are committed to restoring price stability, but we also recognize given these lags there is a risk of overdoing it."

The U.S. central bank has embarked on one of the fastest courses in history to raise borrowing costs and slow the economy. Officials last week approved a third consecutive 75 basis point rate hike, lifting the federal funds rate to a range of 3.0% to 3.25% – near restrictive levels – and indicated that more super-sized increases are coming. 

The CME Fedwatch Tool, which tracks trading, shows that about 30% of investors expect a 50 basis point increase at the Fed's Nov. 1-2 meeting, while about 70% are bracing for a fourth 75 basis point hike. 

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Those hawkish expectations were reinforced this week. During an interview with CNBC, Cleveland Fed President Loretta Mester said officials are resolute in their efforts to push rates into a restrictive territory. 

"Real interest rates — judged by the expectations over the next year of inflation — have to be in positive territory and held there for a time," she said. "We’re still not even in restricted territory on the funds rate."

There is a growing expectation on Wall Street that the Federal Reserve will trigger an economic downturn as it raises interest rates at the fastest pace in three decades to catch up with runaway inflation. Economic growth already contracted in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a nation – contracting by 1.6% in the winter and 0.6% in the spring. 

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Fed chair Jerome Powell has all but conceded the central bank will tip the economy into a recession with its rapid rate hikes, warning that higher rates will cause economic "pain." 

"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer," Powell told reporters in Washington. "Nonetheless, we’re committed to getting inflation back down to 2%. We think a failure to restore price stability would mean far greater pain."