(Bloomberg) — Two senior Federal Reserve officials stressed the need to act quickly if the U.S. economy looked likely to stumble, reinforcing bets the central bank could cut interest rates by as much as half a percentage point later this month.
Fed Vice Chairman Richard Clarida and New York Fed chief John Williams (NYSE:) buoyed U.S. stocks with their dovish remarks Thursday afternoon, in some of the final comments from central bankers before they enter their blackout period ahead of a July 30-31 policy meeting.
“You don’t need to wait until things get so bad to have a dramatic series of rate cuts,” Clarida said Thursday in an interview on Fox Business Network, citing economic research. “We need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.”
His remarks line up with testimony last week by Fed Chairman Jerome Powell, and comments a bit earlier in the day from Williams, that have cemented expectations for a rate cut. Investors, weighing their words, increased bets Thursday that the Fed will move by a half point at the gathering.
While the U.S. economy is “in a good place,” Clarida said recent global economic data have been softer than expected. “We’ve had mixed data, but I do think the global data has been disappointing on the downside,” he said. “Disinflationary pressures, if anything, are more intense than I thought six weeks ago.”
Clarida, the No. 2 official at the Fed, spoke not long after Williams appeared in New York, saying: “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”
U.S. stocks rebounded and the dollar fell after their remarks while 10-year Treasury yields dropped. Sentiment in equities was subsequently tempered by news that the U.S. shot down an Iranian drone.
Not all Fed officials are on board even a quarter-point decrease.
Atlanta Fed President Raphael Bostic, who has previously expressed skepticism of the need to lower rates, underlined that view earlier Thursday in Tennessee. He rejected the notion that yields in Treasury bonds provide a warning that should cause the Fed to cut.
“It’s important for us to stay grounded in the real economy,” said Bostic, who doesn’t vote on policy this year. Clarida and Williams are permanent voters.
Asked if the Fed can decide to leave rates unchanged this month, Clarida replied, “We go into every meeting looking at the range of options available to us. I think our messaging has been quite clear that we want to put in place the appropriate policies to keep the economy in a good place.’’
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