House Passes Debt Ceiling Bill

The Wall Street Journal’s Nick Timiraos has written an article maintaining that it is increasingly likely that the Fed will keep rates unchanged at their next policy meeting on Wednesday 14 June ahead of a further hike later this summer. This would allow Fed officials to better assess the impact of previous rate hikes on the wider economy as well as stresses to the banking system, which has worried economists given fragility in the sector after SVB’s collapse.

The article follows the Fed’s Harker stating that he thinks the Fed can ‘skip’ a hike rather than ‘pause’ as the term pause suggests a rates would be held unchanged for a while whereas a skip is implies rates will be kept unchanged for a shorter period of time. Harker said that “I am in the camp increasingly coming into this meeting thinking that we really should skip”, though he caveated that by saying that US labour market data “may change my mind.”

Such sentiments were echoed by the Fed’s Jefferson who stated that holding rates unchanged should not imply that rates would not be hiked thereafter.

The release of the minutes from May’s meeting suggests that various FOMC committee members evidently favour a June pause with the minutes stating that “several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary”. However, the minutes also indicated that “many participants focused on the need to retain optionality after this meeting” and thus their view on whether to raise rates or pause will be driven by recent data. The May meeting saw the Fed raise its base interest rate to 5.25% marking the 10th consecutive rate hike which brought borrowing costs to the greatest level since 2007.