Fed Urged to Lean Toward Tightening
A key Federal Reserve official said Thursday the central bank needs to maintain its bias toward raising interest rates, and the Fed disclosed that there was more dissension than previously believed about its credit-tightening policies
Meanwhile, the number of Americans submitting new claims for jobless aid dropped 9,000 last week, according to government data released Thursday, suggesting the job market continues to remain resilient. Also, stockpiles of wholesale durable goods rose for the 35th straight month, a government report said.
San Francisco Fed President Janet Yellen, who has been seen as generally “dovish” on the need for further rate hikes, said Thursday that core U.S. inflation -- excluding volatile food and energy prices -- could take several years to recede to the informal comfort zones used by some Fed officials.
“Inflation is likely to stay above the comfort zone for some time. It could take several years to come back,” Yellen told reporters after a speech on the economy.
“I hope to see some evidence that inflation is moderating somewhat, but inflation isn’t where it needs to be,” she said, repeating the need for the Fed to maintain a tightening bias.
Yellen’s inflation comfort zone is in the 1%-to-2% range on the core personal consumption expenditures price index, or PCE.
Still, Yellen repeated that inflation expectations reflected in financial markets are well-contained and had ticked down since the Aug. 8 Fed policymaking meeting, when members voted to hold its benchmark federal fund rate steady at 5.25%.
But two of the Fed’s 12 regional branches sought a quarter-percentage point hike in the central bank’s so-called discount rate ahead of last month’s meeting, the Fed said Thursday.
Indicating some difference of opinion about the correct level for interest rates, the directors of the Richmond and Philadelphia Fed banks voted to raise the discount rate to 6.5%, according to minutes of the Washington-based Fed board meeting held to consider regional banks’ rate requests.
The Fed ended up keeping the discount rate, which governs emergency Fed loans to banks, at 6.25%.
Meanwhile, the Labor Department reported that first-time claims for state unemployment benefits dropped to a seasonally adjusted 310,000 in the week ended Saturday from an upwardly revised 319,000 in the previous week.
The new claims data, an early reading on the resilience of the job market, fell to the lowest level since July 22, the Labor Department said. “The number of new filers has been unusually steady this year and particularly over the last six weeks,” said Stephen Stanley, chief economist at RBS Greenwich Capital.
Separately, the Commerce Department reported that inventories held by wholesalers rose 0.8% in July, slightly larger than Wall Street forecasts, as sales growth slowed to 0.4%. Analysts cautioned that working through the inventories could drag on economic growth.
