US Fed's Bullard and Waller Jointly Support a 'Giant Step' in July

[Asia Economy New York=Special Correspondent Joselgina] Senior officials of the U.S. central bank, the Federal Reserve (Fed), have expressed support for a 'giant step' of raising the benchmark interest rate by 0.75 percentage points at the July Federal Open Market Committee (FOMC) regular meeting. They drew a line against recession concerns and also presented a forecast that a so-called 'soft landing' is possible.

According to economic media CNBC and others, Fed Governor Christopher Waller stated at an event hosted by the National Association for Business Economics (NABE) on the 7th (local time), "I support a 0.75 percentage point increase in July and a 0.5 percentage point increase in September."

Governor Waller mentioned that after September, there could be discussions about returning to a 0.25 percentage point increase. However, he also hinted that if inflation does not ease, "we will have to do more," implying that large-scale rate hikes could continue depending on inflation indicators. Regarding the recently spreading recession fears, he claimed they were "exaggerated." While aggressive rate hikes could shock the economy, considering the recent labor market, such concerns are excessive.

On the same day, James Bullard, President of the Federal Reserve Bank of St. Louis, also stated that a 0.75 percentage point increase is necessary at the July FOMC. Bullard, a representative hawkish figure within the Fed who has advocated for the giant step since the beginning of the year, emphasized, "It is reasonable to go with 0.75 percentage points this time."

President Bullard also drew a line against the possibility of a recession. While acknowledging some concerns such as the potential slowdown in economic growth, he mentioned, "The possibility of a soft landing is high going forward." He also emphasized that although the U.S. economy recorded negative growth in the first quarter, the Gross Domestic Income (GDI) showed positive growth. He added, "Even if the Fed raises rates sharply, economic growth will continue this year," and "Looking at various related indicators, the labor market is in a very solid state."

Governor Waller and President Bullard are classified as representative hawkish figures within the Fed. In particular, these remarks drew more attention as they came amid the Fed's reaffirmation of its willingness to tolerate economic slowdown to curb inflation, as revealed in the minutes of the June FOMC released the previous day.

Investors are closely watching the employment report to be released on the 8th. It is expected that they will try to gauge the Fed's next move through this report. The weekly initial jobless claims announced on the same day recorded the highest level since January, suggesting a possible slowdown in labor demand. According to the U.S. Department of Labor, the weekly unemployment insurance claims increased by 4,000 from the previous week to 235,000, exceeding market expectations (230,000).

Tom Essaye, founder of Sevens Report Research, said, "The key to tomorrow's employment report is the peak of inflation and the peak of the Fed's hawkish stance," adding, "If the report reflects these two realities, it will promote a relief rally." Jonathan Golub, Chief U.S. Equity Strategist at Credit Suisse, evaluated, "Given layoffs and hiring freezes in the tech sector, recent ISM manufacturing and services sector figures below the baseline of 50, and although still very low, the increase in unemployment insurance claims, the employment report to be announced on Friday will have particularly significant meaning."

Concerns about recession persist. On this day, in the New York bond market, the inversion phenomenon continued where the yield on the long-term 10-year Treasury bond fell below that of the short-term 2-year bond. Such long- and short-term yield inversion is generally regarded as a precursor to recession.

Goldman Sachs lowered its forecast for U.S. Gross Domestic Product (GDP) growth in the second quarter to 0.7%. The GDPNow, a real-time GDP tracker by the Federal Reserve Bank of Atlanta, estimated on the same day that the U.S. GDP growth rate for the second quarter would record an annualized -1.9%. Although this is an improvement from the -2.1% announced on the 1st, it remains negative, warning that a technical recession for two consecutive quarters is near. On the same morning, the U.S. trade deficit for May narrowed to the smallest scale this year but exceeded market expectations.

This content was produced with the assistance of AI translation services.