File - Federal Reserve Chairman Jerome Powell speaks during the Thomas Laubach Research Conference at the William McChesney Martin Jr. Federal Reserve Board Building in Washington, Friday, May 19, 2023. AP
“Skipping a rate hike at a coming meeting would allow (Fed policymakers) to see more data before making decisions” about whether to further increase rates, said Fed Governor Philip Jefferson in a speech Wednesday. Philadelphia Fed President Patrick Harker made similar comments Wednesday.
Jefferson has been nominated by President Joe Biden to be the Fed's vice chair, though he has yet to be confirmed by the Senate. But his nomination places him close to the center of Fed policymaking.
Including Jefferson, three top Fed officials have been united in support of the idea of skipping a rate hike in June, despite a slew of tough talk from other Fed policymakers and a disappointing inflation report last week.
On May 19, Fed Chair Jerome Powell hinted that he also supported pausing rate hikes at the June meeting, to give the Fed time to evaluate the economic impact of its previous rate increases.
And John Williams, president of the Federal Reserve Bank of New York, another key member of the Fed's leadership, has also indicated he would prefer to hold off from lifting rates at the June meeting.
“All the pieces of a skip are here and told more forcefully than in past weeks," Tim Duy, chief U.S. economist at SGH Macro Advisors, said.
The Fed has implemented 10 straight rate hikes over the past 14 months, pushing its benchmark interest rate to about 5.1%, the highest in 16 years. The rate increases have made mortgages, auto loans, credit card borrowing, and business loans more expensive. Fed officials hope that higher rates will slow spending, cool the economy, and bring down inflation.
Tough talk on inflation from other Fed officials continued this week. Loretta Mester, president of the Cleveland Fed, expressed support for another hike in June during an interview published Wednesday in the Financial Times.
"I don’t really see a compelling reason to pause — meaning wait until you get more evidence to decide what to do,” she said. “I would see more of a compelling case for bringing (rates) up.”
And last Friday, a report showed that U.S inflation picked up to 4.4% in April, compared with a year ago, up from 4.2% in March, according to the Fed's preferred inflation measure. That is far above the Fed's target of 2%. Excluding the volatile food and energy categories, core prices rose 4.7% from a year ago, also higher than the previous month.
The inflation figures and comments from officials such as Mester caused Wall Street traders to put the odds of a rate hike in June as high as 70% early Wednesday.
But Jefferson's remarks, as well as similar comments by Harker, reversed traders' expectations, with markets pricing in 65% odds of no hike in June later Wednesday afternoon.
“I am definitely in the camp of thinking about skipping any increase in this meeting,” Harker said. He is a voting member of the Fed's interest-rate setting committee this year, while Mester is not.
Both Jefferson and Harker were much more explicit, however, than Fed officials have been previously about their willingness to return to rate hikes at upcoming meetings, should inflation show few signs of declining.
“A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,” Jefferson said.
“We might have to do more in subsequent meetings,” Harker said. "And I’m ... willing to do that, but I want to give it a little bit of time.”