To pause or not to pause? Fed officials divided ahead of critical June meeting

Federal Reserve officials are divided on whether to raise interest rates at the central bank's policy meeting next week.

With inflation picking up in April and the job market showing strength, a handful of members think the Fed should continue to raise rates to quell demand and bring down inflation.

Some members, on the other hand, have argued for a pause to give the Fed the opportunity to take a step back and assess the economic impact of the central bank’s 10 rate hikes, tightening credit conditions and signs that inflation is slowing.

Markets are pricing in a 70% chance of a pause at the June meeting based on CME Fed Funds Futures, as of 9:40 am ET Thursday morning. The Fed typically doesn’t like to surprise markets.

Here is a visual assessment of how each member of the Fed's Federal Open Market Committee is leaning, based on a review of their comments over the past month:

Divisions in May

Some of these divisions emerged at the central bank's last policy meeting, in May. Minutes from that gathering later released by the Fed showed several officials were leaning toward a pause while many wanted to keep options open given uncertainty about the outlook.

"There appears to be enough support on the FOMC for a pause at next week’s meeting, but the statement and new projections will make clear that this is not the end of the hiking cycle," said Andrew Hunter, economist for Capital Economics.

"We now expect rates to be raised again at the July meeting."

As part of its most aggressive rate hiking campaign since the 1980s, the Fed has increased the target range for its benchmark interest rate by 5 percentage points since March 2022.

The Fed’s benchmark interest rate stands in a range of 5%-5.25%, the highest level since September 2007.

Hike vs. pause

Some Fed officials on both sides of the debate have been outspoken over the past month about their thinking.

St. Louis Fed President James Bullard said the Fed should do two more rate hikes, while Dallas Fed President Lorie Logan said a pause was not in order, though she said that could change depending on incoming data.

Those in the pause or skip camp appear to be Boston Fed President Susan Collins, who said the central bank may be “at, or near,” a point where it could pause interest rate hikes due to "promising signs" that inflation is moderating.

Philadelphia Fed President Patrick Harker also said last week that he’s in the camp of “skipping” raising rates and that he thinks the Fed’s policy is near or at a point where it is restrictive.

But one official who appears to be in the "skip" category warned that the hikes may not be over.

FILE - Philip Jefferson, then-nominee to be a member of the Federal Reserve Board of Governors, listens during a Senate Banking, Housing and Urban Affairs Committee confirmation hearing on Feb. 3, 2022, in Washington.“Skipping a rate hike at a coming meeting would allow (Fed policymakers) to see more data before making decisions” about whether to further increase rates, said Fed Governor Jefferson in a speech Wednesday, May 31, 2023. Philadelphia Fed President Patrick Harker made similar comments Wednesday. (Ken Cedeno/Pool via AP, File)
Fed governor Philip Jefferson. (Ken Cedeno/Pool via AP, File) (ASSOCIATED PRESS)

Fed Governor Philip Jefferson said last week that skipping a rate hike in June would give the Fed more time to assess more data and the impact of previous rate hikes, but that “a decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle.”

Others were clear they wanted to leave their options open. They include Fed Chair Powell, New York Fed President John Williams, Richmond Fed President Tom Barkin, San Francisco Fed President Mary Daly, Chicago Fed President Austan Goolsbee, and Fed Governor Chris Waller.

"We'll be monitoring as we assess the extent to which additional policy firming may be appropriate to return inflation to 2% over time," Powell said on May 19.

"That assessment will be an ongoing one. As we move ahead meeting by meeting having come this far, we can afford to look at the data and the evolving outlook and make careful assessments."

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