[Summary] "0.75%P Is Acceptable" Fed Senior Officials Flood Hawkish Remarks

[Asia Economy New York=Special Correspondent Joselgina] "There is more work to do." "A 0.75 percentage point increase could also be acceptable."

Senior officials of the U.S. Federal Reserve (Fed) have been rushing to make hawkish (favoring monetary tightening) remarks. This appears to have abruptly halted the financial market’s bets, which had expected the pace of future rate hikes to slow due to recession concerns.

On the 2nd (local time), Loretta Mester, President of the Cleveland Federal Reserve Bank, stated, "Inflation has not yet peaked," and added, "The Fed wants to see stronger evidence that inflation is moving toward the 2% target before easing monetary policy." She reaffirmed her intention to continue raising rates by saying, "There is more work to do." Regarding the sharply increased recession concerns due to consecutive rate hikes, she dismissed them by saying, "The labor market is very healthy right now."

Mary Daly, President of the San Francisco Federal Reserve Bank, also emphasized in an interview with CNBC on the same day, "Our work is not done yet." She warned against interpreting the increased bets in the bond market for rate cuts in the first half of next year following the Fed’s consecutive giant steps (0.75 percentage point rate hikes) as a signal to slow down, calling it a "puzzle" and "not the outlook of the models I see." She also predicted that the Fed would keep rates high for some time after raising them.

Charles Evans, President of the Chicago Federal Reserve Bank, told reporters that raising rates by 0.5 percentage points at the September Federal Open Market Committee (FOMC) meeting and by 0.25 percentage points each at the November and December FOMC meetings is a reasonable path. While stating that rate hikes will continue until inflation slows, he clearly expressed hope that the pace of rate hikes could slow within the year.

However, he left open the possibility of a third consecutive giant step by saying, "If the inflation situation does not improve, we may need to reconsider a higher path," and "0.5 percentage points is reasonable, but 0.75 percentage points could also be acceptable." Presidents Evans and Daly do not have voting rights this year.

According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market currently reflects over a 60% chance of a 0.5 percentage point hike in September. The probability of a 0.75 percentage point hike is 39.5%.

On this day, U.S. Treasury yields rose in the New York bond market as Fed officials’ hawkish remarks were absorbed. The 10-year yield rose to 2.75%, and the 2-year yield rose to 3.07%. The New York stock market closed down across the board amid rising geopolitical tensions following the visit of Nancy Pelosi, Speaker of the House and the third-highest-ranking U.S. official, to Taiwan.

This content was produced with the assistance of AI translation services.