Is the Fed preparing to pivot on interest rate hikes? Not so fast, policymakers say

Federal Reserve policymakers poured cold water on investor hopes for a pause in interest rate hikes as they stress the need to crush runaway inflation and warn of economic pain to come. 

In speeches this week, central bank officials reiterated their resolve to sufficiently tighten monetary policy, hammering home their commitment to corralling stubbornly high consumer prices. 

San Francisco Fed President Mary Daly said Wednesday in an interview with CNBC that she sees interest rates peaking at a range of 4.75% to 5.25%. With the benchmark federal funds rate now at a range of 3.75% to 4% — already well into restrictive territory — that would imply another 125 basis point increase.

Although policymakers have acknowledged that it may be time to start slowing the pace of rate increases following a government report earlier this month that showed inflation moderated in October, they have stressed that does not mean they want to pause hikes altogether. 

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"Pausing is off the table right now, it’s not even part of the discussion," Daly said. "Right now, the discussion is, rightly, in slowing the pace."

St. Louis Fed President James Bullard made similar comments, projecting that rates will rise to at least 5% to 5.25%, and possibly as high as 7%.

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"In the past, I have said 4.75% to 5%," he told reporters Thursday. "Based on this analysis today, I would say 5% to 5.25%. That’s a minimum level. According to this analysis, that would at least get us in the zone."

The Fed raised rates by 75 basis points at the beginning of November for the fourth straight meeting as it tries to wrestle inflation closer to its 2% target with the most aggressive tightening since the 1980s. 

Some policymakers, including Daly, have indicated they prefer a 50 basis point hike in December, but Bullard said he will look to Chairman Jerome Powell to make the decision. 

Traders widely expect the Fed to approve a smaller half-point rate hike at the conclusion of a two-day meeting Dec. 14, although 20% still anticipate another super-sized, 75 basis point increase.

Federal Reserve Governor Christopher Waller cautioned earlier this week a smaller-sized rate hike does not mean officials are close to a pause.

"These rates are going to stay — keep going up — and they’re going to stay high for a while until we see this inflation get down closer to our target," Waller said Monday at a UBS Group AG conference in Australia. "We’ve still got a ways to go. This isn’t ending in the next meeting or two."

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The comments from Fed officials echoed those from Powell earlier this month. Powell struck a hawkish tone during his post-meeting press conference Nov. 2 after Wall Street interpreted a new line in the Fed's updated statement to mean the central bank was considering slowing its aggressive rate hike path in coming meetings.

"Let me say this," Powell told reporters. "It is very premature to be thinking about pausing. When people hear lags, they think about pauses. It's very premature, in my view, to talk about pausing our rate hikes. We have a way to go."