WASHINGTON, Nov 7 (Reuters) – U.S. economic growth in the third quarter was at an annualized rate of 4.9%, Federal Reserve Board Director Christopher Waller said on Tuesday, which will be closely watched as the Federal Reserve considers its next policy actions. He said that it was an “explosive” achievement that was worthy of his efforts. His colleagues explicitly called for further rate increases.
“This was an outstanding quarter this year…this big explosion of numbers,” Waller said at the St. Louis Fed’s Economic Indicators Seminar. Looking at the components of U.S. output, he said, “everything was strong. So this is something we’re really looking at as we think about policy going forward.”
Mr. Waller has been a vocal advocate for aggressive Fed rate hikes to combat high inflation, but his remarks did not include any policy recommendations, and his speech highlighted signs that job growth is slowing and that he He also mentioned a situation he called an “earthquake.” A rise in long-term bond yields that could hinder growth.
But Michelle Bowman, president of the Ohio Bankers Association, said in comments to the Ohio Bankers League that recent GDP statistics show not only that the economy “remains strong,” but also that the speed is increasing and that the Fed’s policy rate He said he took this as evidence that an increase may be necessary.
“We continue to expect the federal funds rate to need to rise further,” Bowman said.
Explicit support for rate hikes has become rare among Fed officials since the Fed raised its benchmark interest rate by a quarter of a percentage point to its current range of 5.25% to 5.5%, but this could be the end of monetary tightening. Many analysts predict that this will be the first move. Cycle started in March 2022.
Indeed, more recent data suggests that the unusual pace of growth in the July-September period may become an outlier this year, with manufacturing and employment growth both slowing in October. , a survey of bank loan officers shows continued credit tightening and declining demand for loans. The New York Fed’s Tuesday report notes that consumer loan delinquencies are on the rise.
This combination of data could mean the effects of central bank rate hikes are felt more broadly and could indicate the kind of economic slowdown that Fed officials were expecting.
The Atlanta Fed’s GDPNow model, based on available economic data, suggests gross domestic product will grow at an annualized rate of just 2.1% in the fourth quarter, which is significantly down from third-quarter measurements. , approaching a pace that Fed officials might consider acceptable for inflation. Continue to decelerate toward the 2% target. The Federal Reserve’s recommended price index inflation rate based on personal consumption spending was 3.4% as of September.
“He’s clearly calmed down.”
Many economists expect the Fed to keep interest rates on hold at its next policy meeting on December 12-13, in part because of the expected economic slowdown and continued tightening of borrowing and credit conditions.
Federal Reserve President Lisa Cook specifically noted rising debt stress in her comments Monday. Although not widely evident among “resilient” U.S. households, “new signs of stress are emerging among households with low credit scores, with individual borrowers facing financial hardship and increasing debt burden.” “It could be painful,” he said. Once that limit is reached, consumer spending may begin to be cut back and, in extreme cases, banks may become even more reluctant to lend.
After sounding the alarm on the impressive growth in the third quarter, Waller also addressed why he thinks the U.S. could pivot further from the excesses that characterized the pandemic era.
For example, after a series of “amazing” job gains, “the labor market has cooled a little bit… it’s definitely calming down,” and recent job gains are roughly in line with levels seen before the coronavirus pandemic. Mr. Waller said that
The Fed is weighing this data against other data to decide whether to raise its benchmark policy rate again.
Rising long-term bond yields, in contrast to economic growth in recent months, have some Fed officials feeling that credit conditions may be tight enough without raising rates of their own. .
Chicago Fed President Austan Goolsby said in comments to CNBC on Tuesday that inflation is slowing and that rising market-based interest rates “if sustained at high levels” could strain credit for households and families. He said that there is a high possibility that it represents. business.
“We need to take that into consideration…You would expect that to have a ripple effect across the economy over time. So we’re all looking at it and trying to figure out what the factors are.” Goldsby said. .
But neither Goldsby nor Minneapolis Fed President Neel Kashkari, speaking to Bloomberg TV on Tuesday, ruled out further Fed rate hikes.
Kashkari, like Waller, pointed to the recent “hot” outlook for economic activity and said, “I question whether policy is currently as tight as we think it is.”
“If we see inflation rising again and economic activity continuing to be very strong on the real side of the economy, we can say that we may need to take further action,” Kashkari added. .
Reporting by Howard Schneider and Lindsay Dunsmuir. Additional reporting by Michael Derby and Ann Saphir.Editing: Paul Simao and Andrea Ricci
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