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Rates Are Fine Now, But Fed Officials Still Worry Over Inflation


Several Federal Reserve officials said interest rates appear to be high enough, for now—indicating the Fed is likely to keep rates unchanged at its upcoming meeting.

But with the economy still humming, future rate hikes aren’t off the table depending upon upcoming economic data, some said. 

Key Takeaways

  • Several Federal Reserve officials said interest rates should remain at their current level of 5.25% to 5.5% at their next meeting on Sept. 20.
  • In speeches and media appearances, some members said inflation was still a worry, potentially prompting further rate increases in the future.
  • While unemployment is likely to increase, New York Fed President John Williams said it wasn’t likely to be as severe as past recessions.

Dallas Federal Reserve President Lorie Logan echoed other top Fed officials when she said Thursday the current federal fund rate of 5.25% to 5.5% was sufficiently high for the time being. But as inflation continues to remain above the Federal Reserve’s target of 2%, the Fed must make a priority of bringing it under control, she said.

“Lower inflation isn’t necessarily low-enough inflation,” she said in a speech to the Dallas Business Club at Southern Methodist University. “If high inflation becomes entrenched, restoring price stability could require much larger and more costly rate increases.”

And while the Fed’s recent cycle of interest rate hikes appeared sufficient for now, that doesn’t mean that the central bank can keep skipping rate hikes if other economic data continues to show persistently high prices, she said.

“Skipping does not imply stopping,” she said of the Fed’s likelihood to raise rates even higher if needed. 

Monetary Policy is ‘Sufficiently Restrictive’

In a Thursday interview with Bloomberg, New York Fed President John Williams also said current monetary policy was “sufficiently restrictive,” meaning interest rates were high enough to keep economic growth, and with it inflation, under control.

One set of data Williams said he would study was the employment market. Williams said he was looking beyond the unemployment rate to other indicators to examine whether the supply and demand of labor has become more balanced. Unemployment is expected to rise, but Williams said it shouldn’t reach critical levels.

“We are going to see some increase in the unemployment rate, but not at the level we have seen in past recessions,”  Williams said.

In comments earlier this week, Boston Federal Reserve President Susan Collins said that the lag effect of interest rate hikes meant that rates needed to stay where they were, but could indeed be raised later. Also this week, Atlanta Federal Reserve President Raphael Bostic reportedly reiterated his comments that the Fed’s recent rate hikes needed time to work before adjusting the rate.

The comments from Fed officials come ahead of the “quiet period” that begins this weekend, where they are prohibited from making public comments ahead of the Sept. 19 meeting.

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.