WASHINGTON- Federal Reserve officials including the vice chair-designate pointed towards a rate hike “skip” in June, prompting a quick reversal of market expectations for another hike as the US central bank weighed the value of caution against still strong inflation data.
In what some viewed as a message from the Fed’s leadership, Fed Governor and vice chair nominee Philip Jefferson said any decision to hold rates steady should not be viewed as the end of the tightening cycle.
“Skipping a rate hike at a coming meeting would allow the (Federal Open Market) Committee to see more data before making decisions about the extent of additional policy firming,” Jefferson said at a financial stability conference in Washington.
Leaning toward what some have called a “hawkish pause,” with rates held steady for now but the door left open for further increases, Jefferson said that “a decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.”
Though Jefferson’s nomination as vice chair is still pending in the US Senate, his remarks were taken as a cue, just two days before the start of a blackout period that prohibits further public comment about the June 13-14 policy meeting.
“We are as certain as we can be that this message would have been agreed with chair (Jerome) Powell beforehand and represents the collective Fed leadership view,” said Evercore ISI vice chairman Krishna Guha, who called it “an authoritative signal that the Fed leadership is not intending to raise rates in June.”
Since the Fed’s last meeting and with inflation showing little recent improvement towards the Fed’s 2 percent target, markets have been on a seesaw trying to determine if the Fed is going to raise its policy rate in June or not. After Jefferson spoke investors reset expectations yet again, with prices of futures tied to the Fed’s policy rate reflecting a less than one in three chance of a June rate hike compared with about a two-in-three probability before his remarks.
