Fed officials considering skipping interest rate hike in June to assess US economy

Two senior Federal Reserve officials indicated Wednesday they may favor skipping an interest rate hike in June to give the Fed more time to assess the health of the US economy.

The US central bank has raised interest rates 10 times since launching an aggressive campaign last year to bring inflation back to its long-term target of 2 per cent.

“Putting off a rate hike until the coming meeting will allow the committee to see more data before making a decision about additional policy tightening,” Fed Governor Philip Jefferson told a conference call in Washington in prepared remarks.

He added that “the decision to hold our policy rate steady in the coming meeting should not be interpreted to mean that we have reached peak rates for this cycle.”

Jefferson, who was recently nominated by President Joe Biden for the vacant number two spot at the US central bank, is one of only 11 Fed members with a vote on the powerful Federal Open Market Committee (FOMC).

“Fed vice-chair nominee Jefferson sees that as an official sign that Fed leadership does not intend to raise rates in June,” researchers at Evercore ISI wrote in a note to clients on Wednesday.

– ‘Quit’ not ‘Stop’ –

While there has been broad agreement on previous rate hikes, Fed officials have been publicly divided on the best path forward at the next FOMC meeting on June 13-14.

Some polling members have supported a further increase, while others have come out in support of keeping rates the same.

Shortly after Jefferson’s speech ended, another polling FOMC member said he believed the Fed should not rush into another rate hike in June.

“I’m increasingly in the camp coming into this meeting that we really shouldn’t pause — I don’t like the word ‘pause’ — but let go of growth,” Philadelphia Fed President Patrick Harker told a conference call in the city.

“I’m not saying we won’t continue to tighten – let me be very clear on this – but I think we may have a little bit left over for the meeting,” he said.

Recent data suggest that the US economy is beginning to slow, although inflation remains high.

On Wednesday, the Fed’s regular report on economic conditions, known as the Beige Book, found that the strong US labor market has cooled somewhat over the past few months, prompting employers to look for workers in sectors such as finance and construction. Snapping just got easier.

It appears that comments from Jefferson and Harker have shaken traders’ perceptions of what the Fed will do next.

With just two weeks before the next rate decision is announced, futures traders now offer a more than 60 percent chance that the Fed will hold interest rates on June 14, according to data from CME Group.

That marks a sharp reversal from the day before, when traders were giving more than a 60 percent chance of another rate hike by the Fed.

(This story has not been edited by News18 staff and is published from a syndicated news agency feed – AFP,