Fed director hints at interest rate pause in June

Phillip Jefferson

According to the Fed director, such a pause after the series of increases would allow the monetary authorities to view further economic data.

(Photo: Reuters)

Washington According to the Federal Reserve (Fed), US economic activity has hardly changed in the past few weeks. Growth on the labor market has recently weakened somewhat and price increases have slowed, the Fed announced in its “Beige Book” economic report published on Wednesday.

However, the outlook seems to be darkening. “Expectations for future growth have deteriorated a little, but the majority of respondents expect further expansion of their activities,” the report said.

There are increasing signals from the management level of the US Federal Reserve that point to an interest rate pause in June. On Wednesday, influential Fed Chair Philip Jefferson said such a pause after the series of hikes would allow policymakers to look at more economic data.

Later, the central bank could then decide what additional tightening of monetary policy was still necessary. “A decision to keep our policy rate constant at an upcoming meeting should not be interpreted as meaning that we have reached the peak in interest rates this cycle,” added Jefferson, who is nominated for the post of vice governor of the central bank.

The President of the Philadelphia Fed District, Patrick Harker, also indicated a preference for maintaining the current base rate level in June. But he could possibly change his mind on the basis of the labor market data coming in on Friday. Futures traders now think it is more likely that the Fed will stand still at the June 14th meeting following comments from Jefferson and Harker.

Overheated US job market

An increase had previously been speculated on – especially because the labor market continues to heat up. The number of vacancies, a measure of the demand for labour, rose surprisingly: this figure rose by 358,000 to 10.1 million by the last day of April, as reported by the Department of Labor in its monthly survey (Jolts). The March data has also been revised upwards and now shows 9.75 million job vacancies instead of the previously reported 9.59 million.

I don’t really see a compelling reason to take a break. Loretta Mester, President of the Cleveland Fed District

On Friday, the Washington government will publish job market data for May: Economists polled by the Reuters news agency expect solid job growth of 190,000 outside of agriculture, after an increase of 253,000 in April. As a rule of thumb, an increase of 70,000 to 100,000 jobs per month is sufficient to provide jobs for the growing US working-age population.

The Federal Reserve wants to bring down high inflation in the USA and at the same time cool down the overheated labor market. It has therefore pushed interest rates up from almost zero to a range of 5.00 to 5.25 percent since the beginning of 2022. According to US Treasury Secretary Loretta Mester, the central bank should continue tightening in June.

“I don’t see any really compelling reason to take a break,” the Cleveland Fed District Chair told the Financial Times. She sees rather convincing arguments for raising interest rates further. Then it is important to keep interest rates high for a while until the uncertainty about the further development of the economy subsides. Mester, unlike Jefferson and Harker, is not eligible to vote at the June rates meeting.

More: Fed economic report “Beige Book”: US economy stagnating

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