Four Federal Reserve regional chiefs declared that the central bank can take its time to assess market turbulence and risks to the US economy before adjusting monetary policy again, solidifying support for a pause from interest-rate increases.
Their voices, atop the new tone of caution set last week by Fed Chairman Jerome Powell, reinforced the message that policy makers will very likely take a break from raising rates in the coming months after lifting borrowing costs four times in 2018, a pace that upset investors and President Donald Trump.
"We have good capacity to wait and carefully take stock of the incoming data and other developments," Chicago Fed President Charles Evans said Wednesday, citing the lack of evidence that inflation was heading meaningfully above the central bank’s 2 % goal.
Evans is a voter this year on the rate-setting Federal Open Market Committee (FOMC).
He was joined by Boston chief Eric Rosengren, one of the more hawkish Fed officials over the past two years, who said weakening growth in China, trade tensions and market volatility all counseled the Fed to be "flexible and patient."
"There should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth," Rosengren, also an FOMC voter this year, said in a speech in Boston.
Atlanta Fed President Raphael Bostic earlier told an audience in Chattanooga, Tennessee that a "patient approach" to policy was warranted.
He answered "yes" to a question from a reporter on whether the next interest-rate move could be an increase or a cut because "we need to signal we are not locked into a particular trajectory for policy."
Cleveland Fed President Loretta Mester said January 4 she didn’t feel any urgency to raise rates, and the Dallas Fed’s Robert Kaplan said the central bank should put interest-rate increases on hold. Neither is an FOMC voters this year.
St. Louis’s James Bullard, one of the FOMC’s most dovish officials, warned in an interview published in the Wall Street Journal that more rate hikes could cause a recession. Bullard also votes this year on the FOMC. Bostic does not.
Fed officials raised rates last month and projected two more hikes in 2019, ignoring Trump’s pressure for a halt and plunging stock markets, which then fell further. Last month became the worst December for stocks since the Great Depression.
Investors were subsequently soothed by Powell’s remarks on Friday that policy makers would be sensitive to the message that markets were sending about downside risks.
There may be further hints on the internal debate at the central bank when minutes of the Fed’s December 18-19 meeting are released at 14:00 in Washington on Wednesday.
The S&P 500 index of US stocks has fallen 12% since a September peak.
Policy makers are trying to balance headwinds from tighter financial conditions, slower growth abroad and softness in some parts of the US economy, against a strong US labour market and robust consumer spending.
Evans forecast US economic growth a bit above 2% this year with unemployment continuing to fall. As a result, he said the Fed should raise rates "eventually"’ to a range of 3% to 3.25%.
"Developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions," he said.
Rosengren also said he believed the view of the US economy reflected in financial markets would ultimately prove overly pessimistic.
"My own view is that the economic outlook is actually brighter than the outlook one might infer from recent financial-market movements," he said.