Several senior Federal Reserve officials on Friday said the U.S. central bank might not be done raising interest rates and that rates are likely to stay “higher, and for longer, than previous projections had suggested.”
While there are promising signs inflation continues to slow, Boston Federal Reserve President Susan Collins said Friday, “I continue to hear about the challenges households and firms face related to too-high inflation.”
At the same time, Collins said, the Fed needs to show patience before raising rates again so it can sift through the economic and separate “the signal from the noise.”
The Fed on Wednesday left its benchmark short-term interest rate unchanged at a range of 5.25% to 5.5%.
Yet the Fed left open the door for another rate hike before year end if inflation doesn’t slow further toward the Fed’s 2% target. The current rate of inflation is about twice as high.
San Francisco Federal Reserve President Mary Daly echoed Collins’ call for patience in an event in Arizona a few hours later.
“We hold rates steady so we have more time to collect the information we need to see if more is necessary or if we can simply hold where we are,” she said.
“What we did at the meeting this week is not a predictor of what we will do at the next meeting,” Daly added. “I have not gotten to a point where I get to declare victory.”
Another Fed official, Gov. Michelle Bowman, was more hawkish and underscored a potential split in the Fed’s inner circle. She said rates will likely have to rise further to tame inflation.
In their most recent forecast, 12 of the 19 top officials predicted one more rate hike this year. Seven thought rates were already as high as they needed to go.
Read: Fed predicts ‘soft landing’ for the economy — low inflation and no recession
Whatever happens next, officials appear fully united in the view that interest rates will need to stay high for quite some time to make sure inflation is vanquished. Senior Fed officials predicted just two rate cuts next year instead of the four they penciled in in June.
“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” Collins said. “Policymakers will stay the course to achieve the Fed’s mandate.”
One of Collins’ worries is the still-high level of core services inflation excluding housing. That measure is viewed as a proxy for labor costs and underlying inflationary pressures in the economy.
The measure “has yet to show the sustained improvement that would be consistent with price stability,” Collins said.