Two policymakers at the Federal Reserve have issued a warning that recent readings on the US economy that are stronger than expected could force them to raise interest rates by a greater amount than they had originally anticipated.
Waller said in remarks prepared for delivery at an event hosted by the Mid-Size Bank Coalition of America-
“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”
After a participant presented pornographic imagery that was accessible to spectators, his virtual event, including the question and answer session that followed the delivery of his prepared remarks, was canceled. According to the event’s organizers, they were the victims of a “teleconferencing or Zoom hijacking.”
Waller’s speech came after remarks made by Raphael Bostic, president of the Atlanta Federal Reserve, who told reporters that he still favored raising rates by 25 basis points in March but was open to lifting borrowing costs higher than he had envisioned if the economy remained so robust. Waller’s speech followed Bostic’s comments.
“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.”
The reaction of the market to Bostic was divided. Investors focused their attention on a suggestion that the Federal Reserve may be in a position to suspend rate hikes sometime during the summer, which led to a rise in stock prices in the United States on Thursday.
Despite this, rates throughout the Treasury market closed higher, having increased earlier in the day as a result of another collection of robust statistics about the labor market. The attention is now being directed toward a report on the US services sector that is scheduled to be released on Friday.
The Federal Reserve Board of the United States has quickly increased interest rates from their goal range of near zero to a range of 4.5% to 4.75%, including a series of four big increases of 0.75 percentage points each. After making a move of 0.5 percentage points in December, they reduced it to an increase of 0.25 percentage points in February.
When officials get together again on March 21-22, they will have received recent reports on employment and price increases by that point. The most recent data that has come in has been fairly positive: Businesses recruited 517,000 new workers in January while inflation remained well above the 2% target that the central bank had set for itself.
Waller stated that the payroll report, in conjunction with the drop in the unemployment rate to 3.4% in January, demonstrated “that, rather than loosening, the labor market was tightening.” Fed officials are currently debating their shifting view, which may involve maintaining the current level of the policy rate for a longer period of time than they anticipated when they published their most recent prediction back in December.
The median prediction indicated that this outlook will result in cutbacks of one full percentage point by the end of the year 2024. Later on this month, the officials will provide an update to their quarterly estimates.
When Fed Chair Jerome Powell makes his way to Capitol Hill the following week to offer his semi-annual testimony to Congress, he will have the opportunity to provide lawmakers with an update on the current forecast. On Tuesday, he will testify before the Senate Banking Committee, and on Wednesday, he will appear before the House Financial Services Committee.
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