More 'Don’t Get Optimistic' Warnings from Fed Officials

What’s worse than having to take a dose of nasty medicine midday/? Having people coming in repeatedly during the morning reminding you that the unpleasant mixture is waiting patiently for you.

Lately, the nagging monitors have been high-level members of the Fed warning that markets shouldn’t hope for a quick end to tougher interest rates—which means ongoing pain for commercial real estate.

Esther George— president of the Federal Reserve Bank of Kansas City, 40 years at the Fed, and retiring in January—told the Wall Street Journal that getting inflation down without a recession might not be feasible.

“I’m looking at a labor market that is so tight, I don’t know how you continue to bring this level of inflation down without having some real slowing, and maybe we even have contraction in the economy to get there,” George said.

That may be the gloomiest recent remark by someone at the organization. Others have been less direct, but not really cheerier when parsing what they actually say.

Fed governor Christopher Waller has been warning that the “market seems to have gotten way out in front on this,” that being better sounding news on the consumer price index when the October numbers came out.

Although on Wednesday in a speech at an economic forum in Arizona, he said, “Looking toward the FOMC’s December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike. But I won’t be making a judgement about that until I see more data, including the next PCE inflation report and the next jobs report.” Then he added, “If the FOMC were to step down to a 50-basis-point increase, it is important to remember that this would still be a very significant tightening action—in other words, just pulling back on the rate of ascent a little bit. At this angle of ascent, with policy already in restrictive territory, the federal funds rate can still be increased quite rapidly with several 50-basis-point increases, a pretty aggressive path for policy.”

Federal Reserve Bank of Boston President Susan Collins talked to the Journal earlier in the month and, of the three, was the most upbeat. Kind of. “The main things that I wanted to emphasize are that—one is still bringing inflation back to target,” Collins said. “We’re going to have to tighten further and then hold for some time. I am optimistic that there is a pathway that would not require a significant slowdown. And I’m happy to talk a bit more about that, recognizing that there are some key risks and that both inflation and unemployment are very costly and that those costs are not equally distributed.”

Even the optimistic official said that Fed actions will continue to put pressure on the economy, rates will go up, and that’s going to keep going on for “some time.” Maybe that bridge loan with a thought that rates will be done in a year isn’t the best move.