Two Federal Reserve officials argued the case for another interest-rate increase in interviews on the eve of an eagerly awaited speech by Chair Janet Yellen in Jackson Hole, Wyo., that will be scoured for hints of a move that could come as soon as September.
Federal Reserve Bank of Kansas City President Esther George repeated her case that higher rates were warranted with the U.S. nearing full employment and inflation rising toward the central bank’s target. Dallas Fed chief Robert Kaplan separately told CNBC television that “the case is strengthening” for another increase.
Their remarks reflect one camp at the Fed in favor of moving soon that’s debating with another group of policymakers who see no reason to rush. Investors are waiting to hear from the chair to figure out where she stands. Yellen speaks Friday at the Kansas City Fed’s annual mountain retreat in Wyoming.
The formal topic of her remarks — “The Federal Reserve’s Monetary Policy Toolkit” — implies a technical focus on the challenges facing the central bank in an era of tepid growth and low inflation. Investors will scrutinize any description of the economy in the chair’s first public comments since June that will clarify if the Fed remains on track to raise rates later this year. Its next meeting is Sept. 20-21.
The two regional presidents’ comments come after several other top Fed officials have signaled that a rate hike could be on the table in coming months. These include New York Fed chief William Dudley and John Williams of the San Francisco Fed, while Vice Chair Stanley Fischer said Sunday the central bank was “close to our targets.”
In addition, Fed discount rate minutes released this week showed the boards of directors at eight of the 12 regional Fed banks last month sought a quarter-point increase in the rate on direct loans from the U.S. central bank to 1.25 percent. It was the first time since policymakers raised the benchmark federal funds rate in December that a majority of the Fed’s regional boards backed a discount-rate increase.
Investors view the probability of a September hike at roughly 30 percent, according to pricing in fed funds futures markets, vs. 20 percent this time last week. Strong U.S. hiring in June and July has eased concerns that a weak spot in May was a harbinger of a downturn in the labor market, while recent comments from Fed officials have been upbeat.
“I thought it was time to continue the process of normalization of interest rates” in July, said George, one of the most hawkish Fed officials. “When I look at where we are with the job market, when I look at inflation and our forecast for that, I think it’s time to move.”
George dissented in favor of a hike in July at the Federal Open Market Committee meeting, when officials left the target range for the benchmark fed funds rate unchanged at 0.25 percent to 0.5 percent. While she currently favors higher rates, she said her view could be shifted by economic data in advance of next month’s policy gathering.