The US Federal Reserve should proceed carefully when deciding whether or not to hike interest rates further to bring down inflation, two senior officials said Monday.
The Fed has already hiked its key lending rate rates 11 times in 18 months, bringing inflation down sharply toward its long-term target of two percent.
It is trying to achieve a so-called “soft landing,” in which it tackles stubborn inflation without tanking the US economy.
Although inflation remains stuck above two percent, the labor market has so far remained historically strong, and economic growth appears resilient, raising the chances of a soft landing.
The Fed’s rate-setting committee “is in a position to proceed carefully in assessing the extent of any additional policy firming that may be necessary,” Fed Vice Chair Philip Jefferson said in prepared remarks.
Earlier Monday, Dallas Fed President Lorie Logan said she would “carefully” evaluate economic and financial developments when deciding if to back another rate hike.
The comments from two members of the rate-setting Federal Open Markets Committee (FOMC) echo previous statements from Fed Chair Jerome Powell, who has urged policymakers to follow a data-dependent path on interest rates.
The two policymakers highlighted the recent increase in yields on long-term US government bonds, which Jefferson said “may reflect investors’ assessment that the underlying momentum of the economy is stronger than previously recognized.”
“As a result, a restrictive stance of monetary policy may be needed for longer than previously thought in order to return inflation to two percent,” he added.
“If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate,” Logan said, referring to the difference between yields on short- and long-term government bonds.
“However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more,” she added.
Futures traders currently assign a probability of more than 85 percent that the FOMC will hold interest rates steady at its next meeting on Oct. 31-Nov. 1.
