Fed Official Says Interest Rate Hikes May Be on Pause for Now

A top leader at the Federal Reserve said Thursday that the central bank is not ready to raise interest rates just yet. Philip Jefferson, the Fed's Vice Chair, spoke at the University of Virginia and said officials need to study more economic data first. He wants to look at trends, risks, and what the economy is doing before making any big moves.

Jefferson said any future changes to interest rate policy should be based on a careful look at the facts. 'My colleagues and I will need to come to our own judgment, which may take more time,' he told the audience. This means the Fed is in no rush to act right away.

So why does all this matter? The Federal Reserve raises interest rates to fight inflation — which is when prices for things like food, gas, and clothes go up over time. Right now, inflation is still higher than the Fed would like. In August, a key measure of inflation called the PCE index showed prices were up 3.4 percent compared to a year ago. A different measure, which leaves out food and energy costs, showed prices up 3 percent over the same time.

Just a few weeks ago, in mid-September, the Fed's main decision-making group — called the Federal Open Market Committee, or FOMC — voted to raise rates by a small amount to keep fighting inflation. Several Fed officials have since said more rate hikes could still happen. Anna Paulson, the head of the Federal Reserve Bank of Philadelphia, said last week that a little more tightening of policy might be needed to bring inflation down to the Fed's goal of 2 percent.

Another Fed official, Michael Barr, agreed. He said on Tuesday that more policy changes are likely needed to make sure inflation gets back to the target level in good time. He made these comments at an event in Detroit. Still, all of these officials are making it clear they will keep watching the data before making a final call.

Before the FOMC's next meeting on October 27–28, the government will release a new report on the consumer price index (CPI), which is another way to track inflation. John Williams, the president of the Federal Reserve Bank of New York, said gathering more data will help the committee decide what to do next. He added that if the economy keeps going as expected, one more small rate increase might make sense later this year.

All of this cautious talk from Fed officials has changed what many traders on Wall Street expect. According to a tracking tool called the CME FedWatch, about 76 percent of traders now think the Fed will hold rates steady at its meeting later this month. Just one week ago, most traders thought the Fed would actually raise rates again. It seems the Fed's careful words have convinced many people that a pause is more likely than another hike.