Another Fed Leader Suggests Next Rate Increase Can Wait

Dow Jones
5 hours ago

Federal Reserve Vice Chair Philip Jefferson said Thursday that officials may need more time before deciding whether to raise interest rates again, echoing signals from another Fed leader this week that cast doubt on bets the central bank would lift rates at its meeting later this month.

Remarks from Jefferson reinforced those of New York Fed President John Williams, who said Tuesday there was "no need for urgency" after the Fed's rate increase in September.

Because Jefferson and Williams support Chairman Kevin Warsh in an informal leadership group known as the troika, their parallel messages suggest the go-slow signal reflects the leadership's thinking rather than a single official's preference.

Jefferson observed how yields on Treasury securities across maturities have risen further since the Fed's September meeting, a sign investors are reassessing the economic outlook. "My colleagues and I will need to come to our own judgment, which may take more time," he said in a speech delivered in Charlottesville, Va.

Jefferson said he was looking to "assess whether underlying trends suggest that inflation will return to target with sufficient speed. With more data in hand, such trends may lend themselves to better discernment, as may the appropriate stance of monetary policy."

The yield on the benchmark 10-year Treasury note has climbed to around 5.25% from 5% when the Fed raised rates on Sept. 16. Higher long-term rates can restrain spending and investment, doing some of the work that Fed rate increases are intended to accomplish.

Before Williams spoke Tuesday, investors in interest-rate futures markets saw a more than two-in-three probability of a rate increase at the Oct. 27-28 meeting. By Thursday morning, before Jefferson's remarks, the probability had fallen to around one-in-three, according to CME Group.

The back-to-back speeches highlight a tension in Warsh's approach. The chairman has renounced providing the type of verbal cues his predecessors used to shape investors' thinking about upcoming rate moves. But if investors interpret officials' comments on the economic outlook in ways that expect a move those policymakers aren't ready to make, the Fed faces an unappetizing choice. Officials can jolt investors by holding off or follow through on an increase they may not believe is warranted yet.

Jefferson and Williams this week appeared to be tempering those expectations without ruling in or out any particular decision.

Warsh is scheduled to appear in a moderated conversation at the fall meetings of the International Monetary Fund on Oct. 16 in Bangkok, the day before Fed officials enter a traditional quiet period ahead of their next meeting when they refrain from public comments on monetary policy. That appearance, with IMF Managing Director Kristalina Georgieva, would provide an opportunity to reinforce or recalibrate the message delivered this week.

 

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