Top Fed official says talk of March interest rate cut is ‘premature’

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John Williams, president of the Federal Reserve Bank of New York, has tried to temper speculation about imminent interest rate cuts by the US central bank, saying such discussions were “premature”.

The comments from Williams, who is a close ally of chair Jay Powell and a permanent voting member on the Federal Open Market Committee, come just days after the Fed sparked a surge in US stocks and bonds after it signalled it was done with interest rate rises and was now debating when to begin cutting.

“We aren’t really talking about rate cuts right now,” Williams said in an interview with CNBC on Friday, adding that the Fed was still assessing whether its benchmark rate was high enough to bring inflation back down to the central bank’s 2 per cent target in a sustainable way.

“One thing we’ve learned even over the past year is that the data can move in surprising ways. We need to be ready to tighten policy further if the progress on inflation were to stall or reverse,” he said.

Williams’s comments come two days after the central bank released projections showing that Fed officials were now pencilling in 0.75 percentage points worth of cuts next year — a quarter-point more than they projected in September — and another full percentage point decrease in 2025.

Williams stopped short of saying that the current benchmark rate of 5.25 to 5.5 per cent — a 22-year high — was “sufficiently restrictive”, but acknowledged that, with inflation coming down, unemployment low and growth solid, the Fed was likely to be either “at or near” that threshold.

Financial markets in recent days have increasingly priced in a rate cut as early as March and a full percentage point decline in rates by the end of 2024. The fall in Treasury yields has already cut the cost of capital and loosened financial conditions.

Williams said it was “premature to be even thinking” about a March start to cuts, but acknowledged that it would be appropriate to lower interest rates as the economy came into better balance and inflation fell further.