Expectations for US Central Bank to Delay Rate Hike to December Instead of October
A U.S. labor market report released yesterday Friday, which showed a larger-than-expected slowdown in hiring, reinforced the tendency of policymakers at the Federal Reserve (the U.S. central bank) to refrain from proceeding with a second consecutive interest rate hike this month, aiming to allow time to study additional economic data before making any further decisions.
However, this assessment could change following data that has yet to be released, particularly the Consumer Price Index, which is closely monitored as a measure of inflation and will be published ahead of the Fed’s policy meeting on October 27 and 28.
After raising interest rates by a quarter percentage point last month to put inflation on a “faster” path toward the Fed’s 2 percent target, U.S. central bank officials are now weighing the risks of moving too slowly to curb price pressures against the potential damage to the labor market if they move too quickly.
Federal Reserve Chair Kevin Warsh has adhered to his policy of not making any statements regarding the risks he sees or the path interest rates may need to take, but his colleagues have not been as restrained.
In response to a Fox Business question about whether the Fed should raise or hold interest rates at its next meeting, Chicago Fed President Austan Goolsbee said, “There is a wide range of options on the table.”
He added, “I think the inflation side of the Fed’s mandate is the source of the problem. We need to watch that closely.”
The U.S. Department of Labor reported on Friday that U.S. employers added only 29,000 jobs last month, a figure below economists’ expectations of 90,000 new jobs, and August employment figures were revised downward.
After the Federal Reserve raised short-term borrowing costs last month, policymakers indicated they would likely proceed with at least one more rate hike by the end of the year if the Iran war and other shocks that have driven inflation higher persist.
With continued delays in reaching a ceasefire agreement and trade tensions remaining at the forefront of attention, expectations until early this week pointed to a rapid series of interest rate hikes, coinciding with rising long-term bond yields, which hit their highest levels in 24 years yesterday Thursday. Mortgage interest rates also rose above 7 percent.
However, Federal Reserve Vice Chair Philip Jefferson and New York Fed President John Williams expressed this week their desire to see more data before considering any further action, prompting investors to reduce their bets on a rate hike during the central bank’s October meeting.
An analysis of a CME Group FedWatch tool showed that investors expect a 25 percent probability of a rate hike in October and a very high probability of a hike in December.
Data released this week showed that inflation, according to the Fed’s preferred measure, reached 3.4 percent in August, a rate far above the 2 percent target, but below economists’ expectations.
