Washington: A debate is intensifying among the Federal Reserve’s regional bank presidents about whether to push interest rates up from zero sooner than planned because of recent improvements in the US job market, the Wall Street Journal reported.
Most Fed officials at June’s policy meeting didn’t see rate increases until 2015, according to projections made before the Labour Department reported on July 3 that the jobless rate fell to 6.1 percent in June, the Journal said in an article. Fed officials hadn’t expected unemployment to fall to near 6.1 percent until the end of this year. “We have made more progress toward our unemployment goals than we would have thought” earlier this year, San Francisco Federal Reserve President John Williams told the Journal.
He added that this development “suggests that monetary policy can safely start the process of normalisation a touch earlier” than previously expected. He didn’t specify when that would be, but has said in the past he sees the first Fed rate increase in the second half of 2015, the Journal reported. His comments are notable, the Journal said, because Williams tends to be in the camp of Fed officials, often called doves, who want to keep interest rates low, in contrast to the hawks who consistently call for higher rates to tamp down inflationary pressures.
Williams said the shift in his view was not a “game changer” because he still believes there is “quite a bit” of slack in the economy holding inflation down, the Journal reported. If the Fed does start moving rates up sooner, he noted, it wouldn’t be substantially sooner than previously thought.
Meanwhile, Fed hawks are becoming more vocal about wanting earlier interest-rate increases.
“We need to adjust the language in our statement to reflect that the economy really is better that it was, and that the necessity of having zero interest rates for a long time to come seems to me to be perhaps a risky or unnecessary step at this point,” Philadelphia Fed President Charles Plosser told the Journal.
St Louis Fed President James Bullard has been warning that market participants might not appreciate how quickly the economy is converging toward the Fed’s goals of maximum employment and stable prices, the Journal said. A year ago, Bullard noted, Fed officials thought the jobless rate would be 7 percent by now and the central bank would be finished with a massive program of mortgage and Treasury bond purchases meant to spur hiring and investment.
Instead, the jobless rate is almost a full percentage point lower than expected and bond purchases haven’t been completed. Reuters
