PLANO, Texas (Reuters) - Multiplying risks to the U.S. recovery, including now a self-imposed government shutdown, have broadened calls among even hawkish Federal Reserve officials to be patient before raising interest rates again.
In separate appearances on Tuesday, policymakers from across the spectrum of views agreed the central bank should pause further rate hikes until it is clear how much the U.S. economy will be held back by larger risks like slowing growth in China and narrower ones like the ongoing budget stalemate in Washington.
The shutdown has left 800,000 workers without their wages for nearly a month and deprived contractors of their payments. It also may slow already waning economic growth by 0.1 percentage point or more every week it continues, according to estimates by economists.
Whatever the precise impact, "we know it is negative at a time where even before this you had a number of uncertainties," Dallas Federal Reserve bank president Robert Kaplan said in a lunch address to the Plano Chamber of Commerce.
As a result he said the Fed should wait at least "a quarter or two" before raising rates again as officials sort through a suddenly lengthening series of risks. These include a growth slowdown overseas and financial markets in the U.S. that have tightened more than Fed officials expected in recent months.
Financial and credit volatility in particular has left Fed officials hesitant to take further action, puzzled over whether their rate increases to date are only now starting to bite on family and business spending, and waiting for more information.
"It will take a little bit of time to let this situation unfold...I think it is in the matter of months, not weeks," Kaplan said, adding that the Fed would likely need "a quarter or two" to see how a variety of issues get resolved.
While patience has become the watchword for many Fed officials, that seeming consensus was bolstered on Tuesday by Kansas City Federal Reserve bank president Esther George, among the more vocal at the Fed in recent years in advocating higher rates to guard against inflation and financial instability.
"For now, it seems to me that we should proceed with caution and be patient," George said in remarks prepared for delivery at the bank's headquarters. "A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run."
"There's no need to snuff the economy before it really heats up," Minneapolis Fed president Neel Kashkari told the Rochester Area Chamber of Commerce, repeating his longstanding view that tame inflation meant the Fed should stop rate hikes until prices respond.
The Fed increased interest rates three times in 2017 and four times last year, pushing them up to 2.25 percent to 2.5 percent at its final 2018 meeting in December. It is signaling it would probably raise rates two more times this year.
Fed Chair Jerome Powell and other U.S. central bankers who pushed the rate hikes last year have sought in recent weeks to project a more flexible approach this year.