Fed Officials Commit To Cool Prices As Jumbo-Hike Backing Grows
John Williams said policy makers were “strongly committed” to returning inflation to their 2% target.
(Bloomberg) -- A majority of Federal Reserve officials have now backed considering a second straight 75 basis-point interest-rate hike this month to curb hot inflation, with Atlanta President Raphael Bostic voicing his support after the US posted strong job growth in June.
Speaking to CNBC shortly after Friday’s monthly payroll report, Bostic became the ninth member of the 18-strong Federal Open Market Committee to publicly back another jumbo hike when it next gathers July 26-27.
New York Fed chief John Williams, who is part of Jerome Powell’s leadership team, was a bit more circumspect. He echoed the chair’s discussion of an increase of either 50 basis points or 75 basis points at the next meeting. But he didn’t push back against the bigger move and noted that their benchmark rate was still well below where it needs to be to curb rampant inflation.
“Getting to something like 3-3.5 by the end of the year, it seems pretty clear to me that that’s what we’re going to need to do,” he told reporters after a speech in Puerto Rico. “How high we need to get next year, I think is just, it really depends on what happens with inflation, inflation expectations, and honestly, how much slowing we really see in the economy.”
Investors fully expect policy makers to raise rates by 75 basis points later this month, according to interest-rate futures pricing.
Fed officials have pivoted policy aggressively to confront the hottest inflation in 40 years, jarring financial markets as investors fret they could move too fast and cause a recession.
Officials for their part have played down that threat, stressing their resolve to cool prices, while acknowledging that their actions could slow the economy and cost US jobs.
“The underlying growth signals do seem to be slower,” Williams said, while noting that economists have a poor track record of accurately predicting recession and “it is not my base case.”
The Fed raised interest rates by 75 basis points last month, the biggest move since 1994, and according to minutes of that meeting officials backed raising them by either 50 or 75 basis points when they gather again in late July.
‘Critical Step’
Williams, in his speech, called the June rate move “a critical step” in removing the very easy monetary policy the central bank installed to shield the economy in the early days of the pandemic.
US employers added 372,000 workers to payrolls in June, according to Labor Department figures published Friday, marking a faster pace of job creation than forecasters had anticipated.
Williams called the labor market “incredibly tight,” adding that the central bank’s congressionally-mandated goal of maximum employment “has been achieved.” Tighter monetary policy aimed at combating inflation will boost the unemployment rate somewhat, he said.
“I currently expect real GDP growth in the United States to be below 1% this year, and then to rebound slightly to around 1.5% next year,” Williams said. “With overall growth slowing to below its trend level, I expect the unemployment rate to move up from its very low current level, reaching somewhat above 4% next year.”
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