(Bloomberg) - Former New York Fed President William Dudley said the US central bank will keep raising interest rates to curb high inflation, dismissing speculation that it will hold fire in September.
“The Fed is pretty convinced that they need to go to something close to neutral, expeditiously,” he said in an interview Wednesday on Bloomberg Surveillance. “The notion that at some point they are going to take a pause and look around -- of course that’s going to happen at some point -- but it’s going to be driven by the economic data.”
The Fed’s preferred gauge of price pressures, the personal consumption expenditures price index, rose by 6.3% last month from April 2021 -- more than three times the central bank’s 2% target.
Officials raised rates by a half point last month and Chair Jerome Powell has signaled they’ll do so again at their meetings in June and July. Atlanta Fed chief Raphael Bostic said May 23 that a pause in September “might make sense.” Dudley, a senior adviser to Bloomberg Economics, wasn’t buying it.
“I would not put too much stock on it,” he said. “The market is priced to a peak in the federal funds rate of 3%. I think we’re going to get to there pretty easily, and the Fed will probably actually have to push beyond that ultimately.”
Interest-rate futures markets show investors fully anticipate 50 basis-point increases at the next two Fed meetings while bets on September are more balanced between another half-point move or throttling back to a quarter point.
While Powell hasn’t offered hard guidance beyond July, he did say on May 17 he wanted “clear and convincing” evidence that inflation was declining from 40-year peaks.
Fed Governor Chris Waller voiced a more hawkish line on Monday: backing hiking by 50 basis points for “several” more meetings and saying rate increases of that size should be on the table until inflation was closer to 2%.
Officials are aiming for a soft landing that doesn’t cause a sharp rise in unemployment, which stood near a 50-year low of 3.6% in April.
Waller voiced confidence it could achieve this by cooling demand for labor so that firms stop looking for so many workers -- there are currently two job vacancies for every one person looking for work -- without laying off employees already on payroll.
Dudley was skeptical, though he granted the Fed had done a good job of persuading financial markets that it would get inflation back down.
“You need to get the unemployment rate up to at least 4%,” he said. “The good news is that the Fed has things in hand today in terms of market confidence, in terms of inflation expectations being well anchored. That’s the good news. The bad news is I think people are understating how difficult this job is.”
By Alister Bull
