Jefferson says the Fed may need more time on its next rate move

Federal Reserve Vice Chair Philip Jefferson said on Thursday that he and his colleagues may need more time before they decide whether to raise interest rates again.

He spoke at the University of Virginia's Darden School of Business in Charlottesville. Since the September meeting, he said, yields on bonds of different lengths have risen further.

The 10-year Treasury yield, the market rate mortgages are often priced from, touched 5.34% on Thursday, the highest since 2002. By the afternoon it was 5.24%. He called the rise "a sign that investors are reassessing the evolving macroeconomic landscape."

Jefferson said he and his colleagues "will need to come to our own judgment, which may take more time."

An October increase had already gone from likely to doubtful before he spoke. After Wednesday's inflation report, CME FedWatch, which reads the odds off interest-rate futures, put the chance of a hike on October 28 at about 39%, down from roughly 51% the session before and from nearly 71% a week earlier.

On September 16 the Fed raised its main short-term rate by a quarter of a percentage point, to 3.75% to 4%. The middle estimate among officials for where that rate should be at year-end was 4.1%, above the top of the new range. Those forecasts projected another increase before the end of the year.

In Wednesday's inflation report, core prices, which leave out food and energy, rose 0.2% in August, short of the 0.3% economists had expected, the case for waiting. On Thursday the ISM prices-paid index for manufacturers jumped to 77.9 from 71.1 in August, the case for another increase.

Jefferson said he will "continue to assess whether underlying trends suggest that inflation will return to target with sufficient speed."

"With more data in hand, such trends may lend themselves to better discernment, as may the appropriate stance of monetary policy," he said.

In August, the price index the Fed targets was up 3.4% from a year earlier, and the core index was up 3.0%. Inflation has been above the Fed's 2% target for more than five years, he said, and he sees upside risks to it. The risks to jobs, he said, are roughly balanced.

The committee is not in one place

New York Fed President John Williams said on Tuesday in Buffalo that there is "no need for urgency," though he still expected an increase before the end of the year.

Governor Michael Barr has taken the other side, on September 23 and again on Tuesday at the Detroit Economic Club, two days before Jefferson spoke.

"In my base case, further policy adjustments are likely to be needed to ensure inflation comes down to target in a timely fashion," Barr said.

Boston Fed President Susan Collins wrote on September 22 that "a somewhat more restrictive federal funds rate will help ensure that inflation durably returns to target." St. Louis Fed President Alberto Musalem said on September 21 that the Fed will likely need to raise rates further to bring inflation down.

On timing, Jefferson lines up with Williams. Barr, Collins and Musalem have said policy still needs to tighten.

Freddie Mac's survey on Thursday put the average 30-year fixed mortgage rate at 7.28%, up from 7.03% a week earlier and from 6.34% a year before.

The fund that holds Treasury bonds maturing in more than 20 years, ATLT, fell 3.8% from the September 16 close through Wednesday, and on Thursday it touched its lowest price in a year as the 10-year yield hit that high.

The Fed's next rate decision is on October 28. Friday's jobs report, at 8:30 a.m. Eastern, is the test before that: economists expect 90,000 jobs added in September, after 162,000 in August.