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Business Maverick

Fed’s Williams Sees 50 or 75 Basis-Point July Rate Hike on Table

Fed’s Williams Sees 50 or 75 Basis-Point July Rate Hike on Table
John Williams, president and chief executive officer of the Federal Reserve Bank of New York, speaks during an Economic Club of New York (ECNY) event in New York, U.S., on Wednesday, March 6, 2019. The Federal Reserve can afford to "wait" and watch incoming data amid a slowdown in U.S. economic growth before making another monetary policy move, said Williams.

Federal Reserve Bank of New York President John Williams said officials would debate raising interest rates by either 50 basis points or 75 basis points when they meet later this month to curb surging inflation.

“We are much lower — even today, with the fed funds trading around 1.6% — well below where we need to be by the end of the year,” he told reporters Friday after giving a speech at the University of Puerto Rico-Mayagüez. “50 or 75 is the right positioning,” in terms of the discussion at the Fed’s July 26-27 gathering, he said.

Fed officials have pivoted policy aggressively to confront the hottest inflation in 40 years, jarring financial markets as investors fret they could move too fast and cause a recession. Officials for their part have played down that threat, stressing their resolve to cool prices, while acknowledging that their actions could slow the economy and cost US jobs.

The Fed raised interest rates by 75 basis points last month, the biggest move since 1994, and according to minutes of that meeting officials backed raising them by either 50 or 75 basis points when they gather again in late July. Traders see a 75 basis-point move as a near-certainty.

‘Critical Step’

Williams, in his speech, called the June rate move “a critical step” in removing the very easy monetary policy the central bank installed to shield the economy in the early days of the pandemic.

“In determining how quickly and how high to raise the rates in the future, we’ll watch closely to see how the economy responds to tightening financial conditions and how inflation, inflation expectations, and the economic outlook evolve,” he said. “We will be data-dependent and nimble in our approach.”

US employers added 372,000 workers to payrolls in June, according to Labor Department figures published Friday, marking a faster pace of job creation than forecasters had anticipated. The jobs report bolstered expectations that Fed officials will opt for another three-quarter point rate increase at their next meeting.

Williams called the labor market “incredibly tight,” adding that the central bank’s congressionally-mandated goal of maximum employment “has been achieved.” Tighter monetary policy aimed at combating inflation will boost the unemployment rate somewhat, he said.

“I currently expect real GDP growth in the United States to be below 1% this year, and then to rebound slightly to around 1.5% next year,” Williams said. “With overall growth slowing to below its trend level, I expect the unemployment rate to move up from its very low current level, reaching somewhat above 4% next year.”


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