New York Fed chief: Another interest rate hike an ‘open question’

New York Federal Reserve Bank President John Williams says another rate hike at the September meeting is an “open question” as some Federal Reserve officials consider an exit strategy with interest rates at a 22-year high.

“I think we’re pretty close to what a peak rate would be, and the question will really be — once we have a good understanding of that, how long will we need to keep policy in a restrictive stance, and what does that mean,” Williams said in an interview with The New York Times published Monday.

While Williams said he has not decided whether he would support another interest rate hike next month, he didn’t rule out the possibility that interest rates could start coming down as early as next year, depending on the economic data.

The Fed hiked interest rates last month to a range of 5.25 to 5.5 percent — the central bank’s 11th increase since March 2022 — as it works to wrangle inflation back toward its 2 percent target.

Inflation fell from its peak of 9.1 percent year-over-year in June 2022 to 3 percent in June 2023, according to the consumer price index released last month by the Department of Labor. 

New consumer price data for July is slated to come out Thursday. 

The core personal consumption expenditures index — the Fed’s preferred measure of inflation, which excludes relatively volatile food and energy costs — cooled to 4.1 percent in June. 

The Fed expects a trove of new economic indicators between now and the September meeting, and Williams said he’d be closely watching the data, particularly core inflation.

A strong jobs report released Friday found unemployment dipped to a near-record low of 3.5 percent and wage growth stayed steady, which Democrats touted as a win for “Bidenomics.” Williams said he expected unemployment to rise above 4 percent next year.

But as Chicago Fed President Austan Goolsbee told Bloomberg on Friday, the Fed is trying to “Johnny Cash this thing” and walk a fine line between bringing down consumer prices and not triggering a recession.

Goolsbee also indicated the Fed should start thinking about how long interest rates should remain high.

Fed Chair Jerome Powell told reporters last month that the central bank was no longer forecasting a recession, although he said there’s still a “long way to go” before inflation is under control. 

Half of Americans still feel the economy is on a downward trajectory, a recent CNN survey found. High interest rates are squeezing some consumers, contributing to rising rates on mortgages, credit card debt and more.

“We have the two-sided risks that we need to balance, making sure that we don’t do too much, and weaken the economy too much — more than we need to in order to achieve our goals — and at the same time make sure that we do enough to make sure that we convincingly bring inflation back to 2 percent,” Williams told the Times.