Fed’s Jefferson: Skipping a rate hike at next meeting would allow time to see more data
31.05.2023, 17:46

Fed’s Jefferson: Skipping a rate hike at next meeting would allow time to see more data

Federal Reserve Governor Philip Jefferson said in speech on Wednesday that pausing rate hikes at the next FOMC meeting would offer time to analyze more data before making a decision about the extent of additional tightening. He added that a pause, does not mean that rates peaked. 

Key takeaways from the speech: 

“While it is reasonable to expect that the recent banking stress events will lead banks to tighten credit standards further, the amount of tightening and the magnitude of the effect such tightening might have on the U.S. economy is not yet clear, and this uncertainty complicates economic forecasts.”

“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. Indeed, skipping a rate hike at a coming meeting would allow the Committee to see more data before making decisions about the extent of additional policy firming.”

“While my base case forecast for the U.S. economy is not a recession, higher interest rates and lower earnings could test the ability of businesses to service debt. In addition, and perhaps more in focus given the recent events affecting certain areas of the banking sector, higher interest rates could further exacerbate stress at banking organizations, especially those that are highly exposed to longer-duration assets and have a relatively high ratio of uninsured deposits to total deposits.”

Market reaction

The US Dollar is up across the board but is moving off daily highs, as market sentiment recovers. Comments from Fed’s Jefferson and Harker sounded dovish. US yields are at fresh lows and DXY is at 104.35, retreating from monthly highs. 
 

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