Fed's Williams sees no urgency for next rate hike

BUFFALO: Federal Reserve policymakers probably only need to deliver one more rate hike this year to get inflation back on track to the US central bank's 2 per cent goal, New York Fed President John Williams said on Tuesday (Sep 29), in what amounted to a pushback against mounting expectations for earlier policy tightening.

“With the policy action we took at our September meeting, there is no need for urgency,” Williams said at the University at Buffalo, in Buffalo, New York. Watching incoming data before deciding what's next “should provide greater clarity” on how the economy is performing, Williams said.

“If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target,” Williams said, while adding “that is just my forecast, and time — and the totality of the data — will tell”.

Financial markets took the unusually pointed messaging on board, with traders quickly paring what had been heavy bets for an October rate hike and now pricing for a single interest-rate hike this year, most likely at the Fed's mid-December meeting.

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The Fed two weeks ago lifted its overnight target rate range by a quarter percentage point to 3.75-4.00 per cent, and the majority of Fed policymakers signalled another rate hike would likely be appropriate this year.

Fed Chairman Kevin Warsh, however, said nothing about his own rate-path expectations. In the intervening weeks, traders had added to bets that rising oil prices from the seven-month-old Middle East conflict would force the Fed to act again soon.

Hawkish Fed commentary also fueled that narrative, including from Fed Governor Michael Barr, who reiterated on Tuesday the case for "further policy adjustments" after high energy prices and strong AI-related demand knocked inflation off course from progress toward 2 per cent.

Williams signalled on Tuesday that traders might be getting ahead of themselves, even as he underscored the importance of containing inflation. The New York Fed chief typically works closely with the Fed chair to shape the central bank's monetary policy stance, so his words carry particular weight.