New York Federal Reserve President John Williams said Thursday it would be “reasonable” to expect the central bank to raise interest rates again before the end of the year.
Speaking at the London Macro Policy Forum, an event organized by the National Institute of Economic and Social Research, Williams said that another hike this year is likely.
“It’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it,” he said.
“But we have to see. We’re going to collect the data and do what we did between July and September.”
Williams stops short of committing to October
Williams, who also serves as vice-chair of the Fed’s interest rate-setting committee, did not explicitly endorse an October move, stressing that policymakers still need to assess incoming data before deciding on timing.
He also said the era of explicit forward guidance is “over,” a stance that echoes Fed Chairman Kevin Warsh, who has said the central bank will avoid directly signalling its next move ahead of future meetings.
Williams said the same accumulation-of-evidence approach that shaped September’s hike will guide the Fed’s next decision.
Williams noted that the US and other major economies have proven resilient to the shock of higher energy prices caused by the Iran war, but said inflation remains the “big challenge” for policymakers trying to balance growth and price risks.
“We really want to see not only inflation get back to 2%, which is absolutely essential to achieve that, but also we want to see that happen in a timely manner,” he said.
Markets have already moved further than Williams
Fed funds futures are pricing in a 77.5% probability of an October rate hike, according to CME Group’s FedWatch tool, up sharply from around 53% just days earlier.
The Fed raised its benchmark rate by a quarter point earlier this month to a target range of 3.75% to 4%, and 16 of 18 policymakers signalled in their updated projections that at least one more hike is likely before year-end.
Other Fed officials have echoed that tone this week.
Boston Fed President Susan Collins said Wednesday there is “an increased likelihood” that inflation stays “notably” above the Fed’s 2% target, while Fed Governor Michael Barr said, “further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion.”
Yields hit 19-year highs, stocks fall
Markets reacted sharply to the hawkish tone building through the week.
Wall Street fell Wednesday as Treasury yields surged following stronger-than-expected PMI data.
The S&P 500 dropped 0.75% to close at 7,706.03, the Nasdaq Composite fell 1.13% to 26,936.04, and the Dow Jones Industrial Average lost 352.10 points, or 0.68%, to 51,511.59.
The 10-year Treasury yield popped 7 basis points to 5.058%, a level not seen since July 2007.
The 2-year Treasury yield jumped 8 basis points to 4.464%, while the 30-year yield gained more than 4 basis points to 5.347%.
Preliminary S&P Global PMI data showed US private-sector activity expanding at its fastest pace in more than five years in September, with employment growing at its quickest rate since 2022, adding further fuel to rate-hike expectations.
The combination of a resilient economy, persistent above-target inflation, and a Fed that has explicitly stepped back from forward guidance leaves markets more reliant on incoming data releases to gauge the central bank’s next move.
This post Fed’s Williams signals another rate hike as October bets surge may be modified as updates unfold
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