Two monetary policy experts threw cold water Wednesday on a suggestion from Atlanta Fed President Raphael Bostic that the central bank might pause in September after two large half-percentage point rate hikes in June and July.
“I am puzzled by this notion they should pause in September, because if they pause in September, it means that this economy is much more fragile that what you think it is” said Mohammed El-Erian, chief economic advisor at Allianz, in an interview on CNBC.
“This economy is still pretty strong. Especially the labor market,” he said.
“So the Fed should be giving a signal beyond the next two meetings that it expects to continue hiking until inflationary expectations are well contained. Otherwise we are going to be talking about this problem next year,” he said.
Perhaps the Fed can slow to a 25 basis point rate hike in September if it is comfortable with what it is seeing, he said.
Minutes of the Fed’s May meeting showed that most Fed officials support half-percentage point moves at both the Fed’s June and July meeting. That will bring the Fed’s benchmark rate to a level of 1.75%-2%.
However last week Atlanta Fed President Raphael Bostic suggested that a pause in the rate hiking cycle in September. Since then, Bostic, in an interview with MarketWatch on Tuesday, said the market had reacted quickly to the Fed’s plan to curb inflation and the Fed needed to gauge whether economic conditions were also changing as the Fed hiked rates. He added that his suggestion that the central bank take a September “pause” in its push to raise interest rates should not be construed in any way as a “Fed put,” or belief that the central bank would come to the rescue of markets.
Former New York Fed President William Dudley “of course” the Fed will pause at some point, but said he thinks the Fed will not stop hiking rates until later in the fall.
In an interview with Bloomberg on Wednesday, Dudley said the Fed will get to 3% level “pretty easily” and will probably “have to push beyond that ultimately.”