Two US Federal Reserve policymakers on Thursday said that recent stronger-than-expected readings on the US economy could push them to raise interest rates by more than previously expected.
Christopher Waller, a member of the Fed Board of Governors, said that if payroll and inflation data cool after hot prints in January, “then I would endorse raising the target range for the federal funds rate a couple more times, to a projected terminal rate between 5.1 percent and 5.4 percent.”
“On the other hand, if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place before the data for January were released,” Waller said in remarks prepared for delivery at an event hosted by the Mid-Size Bank Coalition of America.
Photo: AFP
His virtual event, including the question-and-answer session following delivery of his prepared remarks, was canceled after a participant displayed pornographic content that was visible to viewers.
The organizers said that they had been targeted by “teleconferencing or Zoom hijacking.”
Waller’s speech followed comments by Atlanta Fed President Raphael Bostic, who told reporters that he still favored raising rates by 25 basis points this month, but was open to lifting borrowing costs higher than he had envisioned if the economy remained so robust.
“I want to be completely clear: There is a case to be made that we need to go higher,” Bostic said. “Jobs have come in stronger than we expected. Inflation is remaining stubborn at elevated levels. Consumer spending is strong. Labor markets remain quite tight.”
Market reaction to Bostic was mixed. US stocks climbed on Thursday, with investors focusing on a comment that the US central bank could be in a position to pause rate hikes sometime this summer.
Still, yields across the US Treasury market closed higher after rising earlier in the day on another batch of strong labor-market data. The focus now shifts to a report on the US services sector, which was due yesterday.
US central bankers have raised rates rapidly from near zero a year ago to a target range of 4.5 to 4.75 percent, including a series of four jumbo 0.75 percentage-point increases.
Last month, they stepped down to a 25 basis-point increase after a half-point move in December last year.
Officials next meet on March 21 and 22, and by then they will have seen fresh reports on employment and inflation.
Recent incoming data have been surprisingly strong. Employers added 517,000 new workers in January, while inflation remains well above the central bank’s 2 percent target.
Waller said that the payroll report, together with a decline in the unemployment rate in January to 3.4 percent, showed “that, instead of loosening, the labor market was tightening.”
US Fed officials are discussing their evolving outlook, which might include holding the policy rate higher for longer than they expected when they published their most recent forecast in December last year.
That outlook showed a full percentage point of cuts by the end of next year, according to the median projection.
Officials are to update their quarterly forecasts later this month.
US Fed Chair Jerome Powell will have a chance to update lawmakers on the outlook when he heads to Capitol Hill next week to deliver his semi-annual testimony to the US Congress.
He is to appear before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
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