Fed Officials Say They May Need to Pick Up Pace of Rate Increases
30 March 2017 - 09:30AM
Dow Jones News
By Michael S. Derby
Most Federal Reserve officials expect to raise short-term
interest rates two more times this year, but some are now warning a
brightening economic outlook could prompt them to lift borrowing
costs even more.
Fed Vice Chairman Stanley Fischer, a close ally of Chairwoman
Janet Yellen, reaffirmed the consensus view Tuesday, telling CNBC
the central bank's recent projection of two more rate increases
this year in addition to the one earlier this month "seems to be
about right, that is to say, it's my forecast as well."
Some officials, however, say they see a good chance the economy
will perform better than expected -- called upside risk in
central-bank jargon -- either because of its own strength or if it
gets a boost from new tax, spending and regulatory policies sought
by the Trump administration. If so, that could justify more Fed
rate increases than currently envisioned to prevent the economy
from overheating.
San Francisco Fed President John Williams said Wednesday he
still expects just two more rate moves this year, but added, "given
my forecast, along with upside risks, I would not rule out more
than three increases total for this year."
Chicago Fed President Charles Evans said Wednesday that "for the
first time in quite a while, I see more notable upside risks to
growth." Speaking at a conference in Frankfurt, he said the
environment "reflects both strong economic fundamentals and,
possibly, stronger fiscal support over the medium term."
He told reporters after his speech the Fed could lift rates four
times this year "if things proceed even better" than currently
expected.
Meanwhile, Boston Fed President Eric Rosengren went further,
saying Wednesday the Fed should plan on three more rate increases
this year, for a total of four in 2017. "The base case would be
four tightenings, reflecting the strength of the economy."
He said he wouldn't view such a course as aggressive compared
with past Fed efforts to raise rates. He would like to see the Fed
move steadily and only hold off if the economy disappoints. "This
would still be a fully data-dependent approach, not a preset path,"
he said.
Mr. Rosengren, once an advocate of keeping rates very low when
the economy and inflation were weaker, has more recently favored
raising borrowing costs to keep the economy in balance and the
expansion humming. He also is worried very low rates could fuel
excessive risk-taking in markets, particularly in commercial real
estate.
The Fed earlier this month raised its benchmark interest rate to
a range between 0.75% and 1% and signaled it expected two more rate
rises this year, for a total of three in 2017. The move this month
was just the third quarter-percentage-point rate increase since the
financial crisis, when the central bank lowered rates to near zero
to steady markets and bolster the economy.
Most Fed officials believe they are now at or close to their
goals of full employment and low, steady inflation. Unemployment
was 4.7% last month, amid robust job growth. Consumer inflation
remains short of the Fed's 2% target, but has been rising.
Mr. Williams said the Fed can't wait until inflation hits the
target before lifting rates. He said the central bank could
tolerate inflation modestly overshooting 2% for a while, but isn't
seeking to drive it that high.
One dissenting voice among the officials is Minneapolis Fed
President Neel Kashkari, who thinks raising rates now is a mistake
given low inflation and uncertainties about the labor market's
health. He voted against the rate increase earlier this month and
said after the central bank's policy meeting "we are still coming
up somewhat short" of the Fed's goals.
Todd Buell contributed to this article.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
March 29, 2017 18:15 ET (22:15 GMT)
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