Two Federal Reserve policymakers said the central bank will likely need to raise interest rates again to bring down high inflation. The comments follow a quarter-point hike days earlier and come as futures markets price in more tightening than the Fed's own projections show.
Philadelphia Fed President Anna Paulson and New York Fed President John Williams both signaled Thursday that further tightening is likely coming, pointing to inflation that remains too high. Paulson, a voting member of the Federal Open Market Committee, described inflation as persistently elevated and, according to Reuters, said further tightening may be needed: "if conditions evolve as I expect, some modest further tightening may be warranted."
Officials point to more hikes ahead
Speaking in London, Williams cited Fed projections released last week that penciled in another increase, saying it's likely another rate hike is appropriate by the end of the year. His remarks came just over a week after the Fed raised its benchmark rate by a quarter point, to the 3.75%-4.00% range.
Fed Chairman Kevin Warsh reinforced that message at the post-meeting press conference, saying the central bank's predominant focus is on price stability because inflation is too high and has been for too long. In contrast to the Fed's projection for one more hike this year, futures markets are braced for significantly more increases.
Inflation persistence dominates the mandate debate
Cleveland Fed President Beth Hammack said the economy is growing at a solid pace and the labor market remains close to maximum employment, but inflation stays elevated with risks tilted to the upside. She did not address the policy outlook directly, but noted that inflation persisting above 2% leaves the Fed less room to treat price shocks as temporary.
Inflation, measured by the Personal Consumption Expenditures Price Index, ran at 3.7% in July on a year-over-year basis, driven largely by the aftershocks of tariffs and higher fuel costs tied to the US-Israeli war with Iran. Hammack warned that when shocks arrive one after another during a period of elevated inflation, the risk grows that an inflationary mindset takes hold.
Source: Investing.com
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