Federal Reserve officials split publicly on Friday over what a strong October jobs report means for policy, with the two most senior voices pulling in different directions on timing and the White House arguing against any increase at all.
San Francisco Fed President Mary Daly, speaking on CNBC hours after the Bureau of Labor Statistics reported payrolls up 165,000 in October with unemployment at 4.1 percent, said she expects the central bank will need to raise rates further to bring inflation down. “My expectation is, we’re going to have to tighten policy further,” Daly said, though exactly when and how much is not yet clear. She called the repricing of technology stocks “painful” but orderly, and said the solid labour market gives the Fed latitude to finish the inflation job. Daly noted that average hourly earnings rose 3.1 percent on the year in October, below September consumer price inflation of 3.7 percent, so real wages are still falling. She votes on the Federal Open Market Committee next year, not in 2026.
New York Fed President John Williams, speaking earlier Friday at a European Central Bank conference in Frankfurt, before the payrolls release, took the more patient line. “Inflation is absolutely too high. It’s been too high for too long,” Williams said. “It’s absolutely essential that we bring inflation back to our 2% target in a timely manner and a sustained basis.” But he said inflation expectations remain well anchored, wage growth looks consistent with the 2 percent goal, and the committee’s last statement had correctly concluded that this is a time to collect more information before deciding the stance of policy. Reuters reported that financial markets see a more than 50 percent chance of a December rate hike, with a move by March fully priced in.
The White House pushed back the same afternoon. National Economic Council Director Kevin Hassett argued on Bloomberg Television that the strong employment report does not mean the Fed should raise rates in December, presenting the hiring as supply side driven growth that can coexist with lower inflation.
Bond markets marked the debate with a modest backup after two days of haven driven gains. At Friday’s close the 5 year Treasury yielded 4.65 percent, up 4.0 basis points on the day, the 10 year yielded 4.86 percent, up 2.2 basis points, and the 30 year yielded 5.26 percent, up 0.9 basis points, according to site market tables. All three remain lower on the week. The federal funds target range stands at 3.75 to 4.00 percent after the committee held on October 28, and the next decision is on December 8 to 9.