Fed Officials Signal Another Rate Hike May Be Needed This Year, but Timing Remains Open
By Juliegrace Brufke | Quincy News Correspondent
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Washington (Quincy News) — New York Fed President John Williams said Thursday that another interest rate increase before year’s end is a reasonable possibility, though he stopped short of saying whether the Fed might act in October or December.
Speaking at a conference in London, Williams said investor sentiment suggested “it’s likely that another rate hike may be appropriate by the end of the year.” He added, “That seems to me a reasonable way of thinking about it. But we have to see,” CNBC reported.
The Fed raised its benchmark rate by a quarter percentage point on Sept. 16, to a range of 3.75% to 4%. The vote was unanimous. In projections released that day, officials’ median forecast put the rate at about 4.1% at year’s end, consistent with one more quarter-point increase. The projections do not specify when an increase would occur.
In remarks this past week, other Fed officials also raised the possibility of further tightening to bring inflation down.
At a Chicago Fed housing conference on Wednesday, Gov. Michael Barr said, in his base case, “further policy adjustments are likely to be needed” to return inflation to the Fed’s 2% target in a timely fashion. He also did not offer specifics on timing.
Philadelphia Fed President Anna Paulson said Thursday that underlying inflation remains “stubbornly elevated” and has shown little progress toward the Fed’s 2% target. If conditions develop as she expects, “some modest further tightening may be warranted,” she said.
Wednesday’s preliminary S&P Global U.S. composite survey added to inflation concerns. Its index rose to 58.4 in September from 56.0 in August, the highest reading since July 2021. Companies reported sharply higher costs, including for fuel and transportation, while the survey also found that the prices they charged customers rose faster than in August.
Market strategist Ed Yardeni has warned that “higher-for-longer” oil prices could keep pushing bond yields up. He told Yahoo Finance on Sept. 18 that record diesel prices could spill into other areas of inflation. He also said the 10-year yield, then near 5%, “might go to the upside.” And he expects the Fed to raise rates at least once more this year.
David Mitchell, a professor of economics and director of the Bureau of Economic Research at Missouri State University, told Quincy News Friday that he expects at least one more increase this year, but the timing is harder to call.
“I’m definitely looking for at least one more this year. For sure,” he said. “Whether that’s October or December is a little bit more of an open question.”
Mitchell thinks the Fed needs two more increases. He said he is less certain how far Chair Kevin Warsh wants to go. “He holds his cards close to the vest,” Mitchell said.
For prospective homebuyers, borrowing costs are already rising. The average rate on a 30-year fixed mortgage reached 7.03% this week, up from 6.95% the previous week, Freddie Mac reported Thursday. Mortgage rates tend to follow the 10-year Treasury yield.
Mitchell said another quarter-point hike would probably push mortgage rates up, “but is it going to raise them by a full quarter point? Probably not.”
He said the bigger force is the 10-year Treasury yield, which is already above 5%, along with worries about federal deficits. “The horse is already out of the barn,” he said, “and they’re going behind it trying to catch up.”
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