By Michael S. Derby
Sept 24 (Reuters) – The U.S. central bank will likely need to raise interest rates again to curb unacceptably high inflation, two Federal Reserve policymakers said on Thursday.
“Returning inflation to 2% is a top priority, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,” Philadelphia Fed President Anna Paulson told a conference at her regional bank.
Paulson, a voting member of the central bank’s rate-setting Federal Open Market Committee, described inflation as “stubbornly elevated” and said “if conditions evolve as I expect, some modest further tightening may be warranted.”
Speaking in London, New York Fed President John Williams also suggested tighter monetary policy is coming. Citing Fed policymaker projections released last week that penciled in a rate increase, he said “it’s likely that another rate hike may be appropriate by the end of the year. That seems to me a reasonable way of thinking about it.”
Paulson and Williams spoke just over a week after the Fed raised its benchmark interest rate by a quarter of a percentage point, to the 3.75%-4.00% range, in an effort to curb high inflation that threatens to undermine public confidence in the central bank’s ability to reach the 2% target.
Fed Chairman Kevin Warsh, in a terse post-meeting press conference, said “our predominant focus is on the price-stability side of our mandate. The plain fact is that inflation is too high and has been for too long.”
In contrast to the Fed projections for one more rate hike in 2026, futures markets are braced for significantly more increases.
CLEAR FOCUS
Fed officials who spoke on Thursday said the central bank does not have much of a balancing act when setting policy relative to its job and inflation mandates. Noting that the economy is strong, they said there is space to focus on the inflation problem.
“Current conditions in the United States indicate that output is growing at a solid pace and the labor market remains close to my definition of maximum employment, but inflation remains elevated,” Cleveland Fed President Beth Hammack said in comments opening a conference at her regional bank.
“The inflation outlook continues to be highly uncertain, with risks tilted to the upside” and “the longer that high inflation persists, the more challenging and costly it can be to bring it back down,” she said.
Hammack, who has been one of the most vocal rate-hike proponents within the Fed, did not address the monetary policy outlook in her remarks. But she did explain that the persistence of inflation above 2% gives the central bank less space to shrug off what would normally be seen as transitory factors.
Inflation, when measured by the Personal Consumption Expenditures Price Index, was 3.7% in July on a year-over-year basis. It is in large part being driven by the aftershocks of President Donald Trump’s trade tariffs and surging fuel costs resulting from the US-Israeli war with Iran.
“When the environment is more prone to shocks, or the shocks arrive one after another in a period when inflation has been elevated for years, there’s a greater risk that an inflationary mindset could take hold,” Hammack said.
(Reporting by Michael S. Derby and David Milliken; Editing by Paul Simao)
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