Fed Officials Mull Skipping Interest-Rate Hike in June to Evaluate US Economy

Two senior Federal Reserve officials indicated Wednesday that they may support skipping an interest-rate hike in June to give the Fed more time to assess the health of the US economy.

The US central bank has raised interest rates 10 times since it began an aggressive campaign last year to bring inflation back down to its long-run target of two percent.

“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,” Fed governor Philip Jefferson told a conference in Washington in prepared remarks.

He added 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.”

Jefferson, who President Joe Biden recently nominated for the vacant number two spot at the US central bank, is one of only 11 Fed members with a vote on the powerful Federal Open Market Committee (FOMC).

“Fed vice-chair designate Jefferson has delivered what we view as an authoritative signal that the Fed leadership is not intending to raise rates in June” despite high inflation and job vacancy data, Evercore ISI researchers wrote in a note to clients Wednesday.

– ‘Skip’ don’t ‘pause’ –

While there has been broad agreement over previous rate hikes, Fed officials have been publicly divided on the best path forward at the next FOMC meeting on June 13-14.

Some voting members have backed another hike, while others are coming out in support of holding rates where they are.

Shortly after Jefferson’s speech had concluded, another voting FOMC member said he believed the Fed shouldn’t be rushing into another rate hike in June.

“I am in the camp increasingly coming into this meeting thinking that we really should skip not pause — I don’t like the word ‘pause’ — but skip an increase,” Philadelphia Fed president Patrick Harker told a conference in the city.

“I’m not saying that we’re not going to continue to tighten — let me be very clear on this — but I think we can take a bit of a skip for a meeting,” he added.

Recent data suggests the US economy has begun to slow, although inflation remains elevated.

On Wednesday, the Fed’s regular report on economic conditions known as the Beige Book, found that the strong US labor market has cooled somewhat over the last couple of months, making it easier for employers to snap up workers in areas like finance and construction.

Jefferson and Harker’s comments appear to have shaken traders’ assumptions about what the Fed will do next.

With just two weeks before the next rate decision is announced, futures traders now assign a greater-than 60 percent chance that the Fed will hold interest rates on June 14, according to data from CME Group.

This marks a sharp reversal from earlier in the day, when traders were assigning a greater-than 60 percent chance of the Fed following through with another rate hike.