Federal Reserve's Top Three Officials: Data Supports Further Rate Hike, Decisions Based on Data

Federal Reserve's number three figure, New York Fed President John Williams, also believes that further rate hikes are needed.

On Wednesday, July 5th, Eastern Time, Williams, who has long held voting rights on the Federal Open Market Committee (FOMC), stated that the expectations of Fed policymakers indicate that in order to bring inflation back to the Fed's target of 2%, further rate hikes are necessary.

Williams said, "We can take some time to assess, gather more information, and then take action," and also stated, "We are clearly committed to achieving the inflation target."

Last month's Federal Reserve monetary policy meeting decided to keep the policy interest rate unchanged while sending a strong hawkish signal: the dot plot shows that two-thirds of Fed officials expect rates to be above 5.5% this year, meaning at least two 25 basis point rate hikes within the year; Fed officials raised the median expectation for the peak of interest rates by 50 basis points to 5.6% in their economic outlook, higher than the level expected by economists and investors.

At a congressional hearing two weeks ago, Federal Reserve Chairman Jerome Powell repeatedly stated that there may be one or two more rate hikes this year, and last week he signaled the possibility of two consecutive rate hikes this year. Powell stated last week that future rate hikes will be more difficult to predict, and the Fed has not committed to a specific number of rate hikes. The question now is whether the policy is tight enough, and the vast majority of Fed officials believe that further action is needed.

Williams stated on Wednesday that he will rely on data to make decisions when determining the Fed's future actions.

Williams pointed out that recent economic data shows that the housing market is unexpectedly strong, economic growth is resilient, and consumer spending growth is slowing, providing information. He said that the data received so far supports the assumption that the Fed still has more monetary policy work to do.

Williams believes that core inflation in the United States is still high, but he agrees that progress has been made in reducing inflation so far. "Even in terms of core services inflation excluding housing, we have seen inflation slow down."

Williams said that the median values of the previously released Fed officials' forecasts indicate that they expect rate cuts in 2024 and 2025, but he believes that actual interest rates will remain restrictive to the economy for a "considerable period of time," and the ultimate path of nominal interest rates will depend on future developments in inflation and the economy.