In an effort to tamp down inflation, the Federal Reserve's sizable interest rate hikes in recent months will likely bring about economic pain, at least in the near term, Beth Ann Bovino, chief U.S. economist at S&P Global, said Thursday at a Council of Institutional Investors conference in Boston.
"It seems to me that the Fed is willing to sacrifice the U.S. economy in the near term for long-term stability," Ms. Bovino said.
For the third consecutive meeting, the Federal Open Market Committee on Wednesday raised interest rates by 75 basis points, bringing the target range for the federal funds rate to a range of 3% to 3.25%. The committee had previously increased rates by 75 basis points in June and July, following a 50-basis-point hike in May and a 25-basis-point increase in March.
Moreover, the committee's median projection for the federal funds rate at the end of the year is now 4.4%, up from the 3.4% projection at the June meeting. The committee's median projection for the federal funds rate at the end of next year is now 4.6%, up from 3.8% projection in the June meeting.
Ms. Bovino, who said the Fed "waited too way too long to raise rates" initially, said the central bank is now playing catch up and needs to get the pace of future rate hikes right.
"If the Fed goes too slow and they raise rates to say 4% and it's not enough, guess what's going to happen in 2023: inflation is going to keep going higher and that means more pain comes from the Fed," Ms. Bovino said. "So I see what they're doing as almost like, 'Look everybody, we've got to rip off the Band-Aid, we better do it fast, it's going to hurt, but this is for a better future.'"
CME Group's FedWatch tool indicated on Thursday afternoon that there is a 66.9% probability that the Fed would increase rates by 75 basis points at its next meeting in November and a 33.1% chance of a 50-basis-point hike.
Fed Chairman Jerome H. Powell in recent public remarks, including at the Fed's annual economic symposium at Jackson Hole, Wyo., last month, said further economic pain is ahead. "These are the unfortunate costs of reducing inflation," Mr. Powell said. "But a failure to restore price stability would mean far greater pain."
