By Jonathan Spicer and Howard Schneider
RIVERWOODS, Ill./CHATTANOOGA, Tenn. (Reuters) – Another clutch of U.S. Federal Reserve policymakers said on Wednesday they would be cautious about raising interest rates without getting better a handle on how growing risks to an otherwise solid U.S. economic outlook could play out.
After months of tumult in the stock market, presidents of four of the 12 Fed regional banks said they wanted greater clarity on the state of the economy before extending the central bank’s rate hike campaign any further.
Three of the four, Charles Evans of Chicago, Eric Rosengren of Boston, and James Bullard of St. Louis, are voting members this year on the Federal Open Market Committee, the bank’s policy-setting panel.
Bullard has long been critical of the Fed’s rate increases, begun in December 2015, but the caution from Evans and Rosengren is new, even if they both believe growth will remain solid and rates will probably need to rise more.
The fourth president, Raphael Bostic of Atlanta, said there was no urgency to raise rates further at this juncture.
The remarks from the four come less than a week after Fed Chairman Jerome Powell eased market concerns that policy makers were ignoring signs of an economic slowdown. Powell said he was aware of the risks and would be patient and flexible in policy decisions this year.
Rosengren on Wednesday used those same two adjectives, while Evans said he would be “cautious.”
The new tone comes after the U.S. stock market dropped precipitously in the fourth quarter of 2018, suffering its worst December performance since the Great Depression. Other signs of tightening financial conditions surfaced as well, including a sharp slowdown in issuance of corporate bonds.
Short-term U.S. interest-rate futures are now pricing in less than a 2 percent chance of a rate hike this year, and traders see a one-in-four chance of a rate cut by next January.
That stands in stark contrast to forecasts from the Fed released after the central bank’s fourth 2018 rate hike in December. Those forecasts called for two more rate hikes this year.
Evans has been among the most vocal backers of gradually tightening U.S. monetary policy, and after a speech in Riverwoods, Illinois, on Wednesday told reporters he still believes the Fed will need to deliver three more rate hikes this year.
But, in his first public comments since November, he nodded to an array of “tough-to-read” factors highlighted by the recent market selloff, but penciled in a forecast for reasonably good U.S. growth and employment in 2019 and beyond.
Rosengren similarly said he expects solid growth this year and said he suspects financial markets are “unduly pessimistic.” But in a break from speeches last year, when he emphasized the risks of allowing unemployment to stay below sustainable levels for too long, Rosengren on Wednesday emphasized risks that could impinge on growth, and said he was taking on board the cautionary signals from falling stock markets.
“There should be no particular bias toward raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth,” Rosengren told the Boston Economic Club. “I believe we can wait for greater clarity before adjusting policy.”
Bullard, meanwhile, told the Wall Street Journal that while the Fed had “a good level of the policy rate today,” there was no rush to push them higher.
Minutes from that meeting will be released later on Wednesday and could shed more light on how policy makers assessed the economy as they agreed to raise rates and, at that time, projected two more increases in 2019..
Overall, that marked the ninth increase of a quarter percentage point since December 2015, when the Fed began lifting interest rates from near zero, where they had been since the financial crisis in 2008.
Atlanta Fed President Raphael Bostic, who earlier this week said the Fed was likely to need at most a single rate increase this year, on Wednesday elaborated on that view as driven by conversations with business executives, who say they have become more defensive in preparing for slower growth by paying down debt and holding off on new plans.
Those conversations “are not consistent with the business sector ramping up,” Bostic said in remarks prepared for delivery to the Chattanooga Area Chamber of Commerce. Bostic, who backed all four rate hikes in 2018 as an FOMC voter, does not have a policy vote on the panel this year.
(Reporting by Howard Schneider in Chattanooga and Jonathan Spicer in Chicago; with reporting by Ann Saphir in San Francisco and Trevor Hunnicutt in New York; Writing by Dan Burns; Editing by Chizu Nomiyama)