“I think it’s a reasonable choice for us because the federal funds rate is so low,” Federal Reserve Bank of New York President John Williams said Thursday in a Bloomberg television interview. “We need to take the policy back to more neutral levels.”
His comments helped fan a sharp rise in the 10-year Treasury yield, from around 2.70% previously to 2.80% after the interview.
The New York Fed chief’s comments are the latest to outline plans for the US central bank to bring rates back to levels that were previously prevalent. global pandemic, or more. In addition to the quarter-point move made last month, that means tightening about 200 basis points during the remaining six Fed meetings this year to get rates down to around 2.5%.
This message has been clearly heard by investors. Interest rate futures are almost all set for a half-point hike at the Fed’s May 3-4 meeting, when officials may announce a start date to shrink its nearly $9 trillion balance sheet.
Williams expressed confidence in the Fed’s ability to soften the economy — calming price pressures without a massive increase in unemployment — and said forward-guiding communications about the Fed’s own policy plans are already getting the ball rolling.
“We have seen a dramatic, significant movement in yields and financial conditions over the past several months and are already well positioned to balance supply and demand,” he said.
US consumer prices rose 8.5% in March from a year earlier, the biggest increase since 1981. The war in Ukraine has raised food and energy costs, pushing headline inflation further away from the Fed’s 2% target.
american central bankerBy their own admission, they were slow to react and are now seen as moving forward with determination to catch up.
Patrick Harker, president of the Philadelphia Fed Bank, said in remarks at Ryder University in Lawrence, “Blank fiscal policies, supply-chain disruptions and liberal monetary policy have pushed inflation far more than I and my colleagues on the FOMC have.” Township, New Jersey, saying he worried about inflation expectations “waste”.
But the consensus among policymakers seems to be faltering about how much further interest rates go beyond “neutral” levels if they will need to go.
Fed pigeons argue that they should not commit to doing more than being neutral until they see that the economy responds to the already anticipated tightening of financial markets.
They also point to balance-sheet roll-offs as another cooling factor in the economy. Officials in the minutes of their March meeting backed a plan to reduce it to $95 billion a month. In a question-and-answer session following his speech, Harker said the balance sheet would go “lawfully” and the process would begin “soon”.
Fed Governor Lyle Brainard, who awaits Senate confirmation to become vice president, said a combination of higher rates and a smaller balance sheet would push inflation down to 2% over time. He also cited changes in market expectations as evidence that further guidance from the Fed has already tightened financial conditions.
“In terms of the exact pace of the policy rate going up from meeting to meeting, I really don’t want to focus on that,” he said on Tuesday.
“By moving quickly to a more neutral currency, it gives the committee the alternative in either direction,” Brainard said, adding that there is an element of two-way risk to rates if the economy begins to decline. is offered.
Some economists have expressed concern that raising rates too high will push the economy into recession.
“It is now clear that they will increase by 50 basis points in May,” said Thomas Costerg, senior US economist at Pickett Wealth Management. is.” basis points.”
But hawks like James Bullard of St. Louis want to get rates above 3% this year and call it wishful thinking that inflation will subside without taking drastic measures on policy brakes.
handle half point
Fed Governor Christopher Waller, who previously was Bullard’s head of research in St. Louis before joining the Fed’s board in Washington in 2020, said the economy could handle a half-digit hike in May and possibly even June and July.
“I don’t see any value in trying to shock the markets; we’re not in a Volcker kind of moment,” he told CNBC in an interview on Wednesday. “We’ll do whatever we want to do to bring inflation back, but we can do it systematically without creating too much financial-market tension.”
Cleveland Fed Chair Loretta Meester also expressed confidence during an event hosted by the University of Akron on Thursday that the central bank can manage to contain inflation without derailing the economy.
“Our intention is to reduce housing at the pace necessary to better balance demand with limited supply to keep inflation under control while maintaining expansion in economic activity and healthy labor markets,” Meester said.
This story has been published without modification in text from a wire agency feed. Only the title has been changed.