Two key US Federal Reserve officials made clear this week that there is no need to rush another interest rate hike in October. Their comments noticeably cooled market expectations.
New York Federal Reserve Bank President John Williams said on Tuesday that there is "no need for urgency" in changing the current monetary policy. According to him, one additional rate hike may prove appropriate closer to the end of the year.
Fed Vice Chair Philip Jefferson elaborated on this idea on Thursday. He stressed that any future policy adjustments should be based on a careful analysis of data, evolving forecasts and the balance of risks. "My colleagues and I will need time to reach our own judgment," Jefferson noted.
Markets reacted quickly. The probability of a rate hike at the 27–28 October meeting, according to traders' estimates, fell to about 25% — versus 70% at the start of the week. On Wednesday, PCE index data were released: in August it rose by 3,4% year-on-year — the same as in July, and still noticeably above the Fed's 2% target.
In September, the Fed had already raised the target rate range by a quarter of a percentage point — to 3,75–4%. At that time, the regulator also forecast another hike before the end of the year. Now most brokers expect it to happen in December instead.
Not all Fed officials are of the same mind. Dallas Fed President Lorie Logan believes at least another 50 basis points of tightening will be needed. Minneapolis Fed President Neel Kashkari, in turn, has no firm opinion on whether action is needed specifically in October.
The next important reference point is the September employment report, due out on Friday. But it is already clear that the Fed has room to wait for new data. The only question is how much that data will change the picture by the end of the year.
