WASHINGTON, Nov 7 (Reuters) – U.S. Federal Reserve policymakers decided last week to keep interest rates on hold, citing strong economic data, signs of an economic slowdown and rising long-term bond yields. We are currently considering the impact. Further interest rate hikes are needed to bring down inflation.
Federal Reserve Board Director Christopher Waller said Tuesday that the U.S. economy grew at an annual rate of 4.9% in the third quarter, an “astounding” performance that “needs to be watched very carefully as we consider future policy.” said.
Waller, who has fervently advocated for the Fed to aggressively raise interest rates to combat high inflation, did not include any policy recommendations in his remarks at an economic indicators seminar at the St. Louis Fed. His presentation also cited signs of slowing job growth and what he called an “earthquake” caused by rising long-term bond yields that could slow growth.
But Michelle Bowman, president of the Ohio Bankers Association, said in comments to the Ohio Bankers League that recent GDP statistics show not only that the economy “remains strong,” but also that the speed is increasing and that the Fed’s policy rate He said he took this as evidence that an increase may be necessary.
“We continue to expect the federal funds rate to need to rise further,” Bowman said.
At yet another event, Dallas Fed President Laurie Logan said that “all of us” were surprised by how well the economy was doing, and that while there had been some progress, inflation was at 3% instead of the Fed’s goal of 2%. He said there is a trend towards. He said the labor market remains “very tight” despite the cooling, and the rise in long-term bond yields that led him and others to hold interest rates last week has eased. He said there was.
“We need to continue to assess the tightness of financial conditions in order to raise inflation to 2% in a timely and sustainable manner,” Logan said, adding that he expects a review of both economic and financial conditions before the next FOMC meeting. He added that he would keep an eye on it. December is approaching.
Explicit support for rate hikes has become rare among Fed officials since the Fed raised its benchmark interest rate by a quarter of a percentage point to its current range of 5.25% to 5.5%, but this could be the end of monetary tightening. Many analysts predict that this will be the first move. Cycle started in March 2022.
Indeed, more recent data suggests that the unusual pace of growth in the July-September period may become an outlier this year, with manufacturing and employment growth both slowing in October. , a survey of bank loan officers shows continued credit tightening and declining demand for loans. The New York Fed’s Tuesday report notes that consumer loan delinquencies are on the rise.
This combination of data could mean the effects of central bank rate hikes are felt more broadly and could indicate the kind of economic slowdown that Fed officials were expecting.
Based on released economic data, the Atlanta Fed’s GDPNow model suggests gross domestic product will grow at an annualized rate of just 2.1% in the fourth quarter, suggesting that Fed officials expect inflation to reach its 2% target. It suggests that we are approaching a pace that could be seen as continuing to slow.
The Federal Reserve’s recommended price index inflation rate based on personal consumption spending was 3.4% as of September.
“He’s clearly calmed down.”
Many economists expect the Fed to keep interest rates on hold at its next policy meeting on December 12-13, in part because of the expected economic slowdown and continued tightening of borrowing and credit conditions.
Federal Reserve President Lisa Cook specifically noted rising debt stress in her comments Monday. Although not widely evident among “resilient” U.S. households, “new signs of stress are emerging among households with low credit scores, with individual borrowers facing financial hardship and falling into debt burden.” “It could be painful,” he said. Once this limit is reached, consumer spending may begin to be cut back and, in extreme cases, banks may become even more reluctant to lend.
Chicago Fed President Austan Goolsby said in comments to CNBC on Tuesday that inflation is slowing and that rising market-based interest rates “if sustained at high levels” could strain credit for households and families. He said that there is a high possibility that it represents. business.
The 10-year Treasury yield has risen about 1 percentage point since July, and although it has fallen since last week, it is still up about 75 basis points since then.
“We need to take that into account…You would expect that to be a ripple effect across the economy, albeit at a different time. So we’re all looking at it and trying to figure out what the drivers are. “There is,” Goldsby said. .
But speaking to Bloomberg TV on Tuesday, neither Mr. Goldsby nor Minneapolis Fed President Neel Kashkari ruled out further Fed rate hikes.
Kashkari, like Waller, pointed to the recent “hot” outlook for economic activity and said, “I question whether policy is currently as tight as we think it is.”
“If we see inflation rising again and economic activity continuing to be very strong on the real side of the economy, we can say that we may need to take further action,” Kashkari added. .
Reporting by Howard Schneider and Lindsay Dunsmuir. Additional reporting by Michael Derby and Ann Saphir.Editing: Paul Simao and Andrea Ricci
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