Philadelphia Fed Chairman Huck stated that the Fed should extend the pause in interest rate hikes as more and more evidence suggests that rising interest rates will lead to an economic slowdown.
Huck said in a media interview on Tuesday that he believes the Federal Reserve may have to wait until early next year to determine whether the rapid rate hikes of the past 20 months are sufficient to quell inflation. Huck has voting rights on the Federal Open Market Committee (FOMC) this year.
Since initiating the rate hike process in March last year, the Federal Reserve has raised interest rates by a cumulative 525 basis points. The last rate hike was in July, and the federal funds rate is currently at a 22-year high of 5.25% to 5.5%.
The Federal Reserve chose to keep interest rates unchanged during its September interest rate meeting, and the dot chart released at that time showed that the central bank would raise interest rates again within the year and may hold them higher for a longer period of time.
The Federal Reserve has two interest rate meetings this year, and several policymakers have stated in the past week that they prefer to keep interest rates unchanged during the next interest rate meeting (October 31 to November 1).
Huck said, "Now is the time for us to sit down and rest for a while. This may or may not last for a long time, but let's see how things will develop in the coming months
Huck said that despite recent unexpectedly strong economic data, news from the business community and field reports suggest that the situation seems to be slowing down. For example, bankers report that an increasing number of commercial loans are about to expire and need to be renewed at higher interest rates, fearing that some companies and their business models will not be able to withstand higher interest rates.
Huck emphasized the lagging effect of monetary tightening policies in his speech at the annual meeting of the Mortgage Bankers Association on Monday. He said, "We have done a lot and we have done it very quickly. The operation of the economy cannot be rushed
As the rotating voting committee of FOMC, Huck never voted against it at the 2017, 2020, and this year's interest rate meetings. He stated on Tuesday that supporting a rate hike in July was a difficult decision, and he needs to see a clear shift in economic data, especially signs of inflation accelerating again, in order to support a rate hike again.
The September non farm employment data and retail sales data in the United States were significantly stronger than expected, while indicators measuring potential inflation have slowed significantly since June. According to data released by the US Department of Commerce, the Consumer Price Index (CPI) in September increased by 3.7% year-on-year; Excluding volatile factors such as energy and food, the core CPI increased by 4.1% year-on-year, the smallest increase since September 2021, and has been declining for six consecutive months.
Huck said that due to the recent rise in long-term bond yields, the Federal Reserve has done enough to slow down the economy and lower inflation, which makes him even more pleased. The 10-year US Treasury yield closed at a 16 year high of 4.846% on Tuesday.
Traditionally, higher borrowing costs weaken investment and expenditure, and this trend is strengthened when higher interest rates also suppress stocks and other assets. Huck said, "Any measure that will reduce financial easing is essentially a part of monetary policy, which is certain
Huck said that once inflation and the central bank's 2% target are within a reasonable range, the Federal Reserve should consider lowering interest rates. He said that given the lagging effect of tightening policies, when inflation drops to 2.5%, one can consider whether interest rates should be lowered.