Federal Reserve governor hints at a break in rate hikes for now

Philip Jefferson, Federal Reserve governor and vice chair nominee, said on Wednesday the central bank could stop hiking interest rates at a future meeting, but that it does not close the door on future increases.

Jefferson said the Federal Reserve could keep the current benchmark overnight interest rate unchanged at a future meeting, but did not rule out future rate increases.

DON'T MISS: 10 Million Jobs Went Unfilled in April, Adding to Inflation Pressures

The Fed has raised interest rates 10 times in an effort to curb inflation since March 2022, which has been a boon for savers, but has impacted businesses and consumers who need loans to finance their projects or purchase a home or car.

Additional tightening of the current monetary policy could be needed if economic data does not reflect movement toward the Fed's goal of lowering inflation rates, Jefferson said without specifically mentioning the June meeting. He has been nominated by President Joe Biden to serve as vice chair of the Fed's Board of Governors,

"A decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle," Jefferson said in a speech at a conference in Washington. "Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming."

The stock and bond markets have been trying to predict if the Fed will stop raising rates temporarily when it meets June 13-14.

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Lowering Odds of Rate Increase

Jefferson's comments lowered the odds of the Fed hiking rates again - the CME Group's FedWatch Tool showed the odds that the central bank would take a break rose to 70%, compared to two-in-three chance before he spoke.

Jobs data on Wednesday showed there was an increase of unfilled positions - 10 million positions went unfilled in April, a more than 5% uptick from the 9.59 million tally in March, according to data from the Bureau of Labor Statistics.

In April, the Fed's main measure of inflation, the PCE or personal consumption expenditures price index, rose 4.4%. The Fed's target remains at 2%.

Jefferson said inflation rates in the U.S. are still "too high" and that "by some measures progress has been decelerating recently."

He believes that the economy would slow down for the remainder of 2023 as households are struggling as higher interest rates lead to an increase in monthly payments for mortgages, car loans and credit card debt.

Banks and other financial institutions have also tightened their lending standards in the wake of three failed banks that were rescued by the federal government. It remains unknown if lenders will continue to make it harder for both businesses and consumers to obtain loans, Jefferson said.

"I expect spending and economic growth to remain quite slow over the rest of 2023," he said.

Jefferson remains bullish about the economy and does not predict that a recession will occur, but noted the impact of the Fed's rate hikes.

"History shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect," he said.

Philadelphia Fed President Believes in Skipping a Hike

Philadelphia Federal Reserve President Patrick Harker said the central bank should skip another hike.

"I am in a camp increasingly coming into this meeting of thinking that we really should skip, not pause," he said in Philadelphia. "We've got to get to a point where we believe policy is restrictive and I think we're close if not at that point right now."

Harker said two critical pieces of economic data would provide more insight on the Fed's next move. The jobs report for May will be released on June 2 and the consumer price index (CPI) is due on the morning of June 13, the first day of the Fed meeting.

"I think we have to be ready that we might have to do more and I'm fully aware we have to do that and willing to do that, but I want to give it a little bit of time," he said.