The Federal Reserve will most certainly need to increase interest rates further to bring down still-high inflation, but the end of its current monetary policy tightening cycle is near, according to several US central bank officials on Monday.
Since March 2022, the Fed has hiked interest rates by 5 percentage points to combat the biggest U.S. inflation in four decades. Fed members decided last month not to raise interest rates in order to examine the still-developing consequences of earlier boosts in borrowing costs, even though most expected at least two more increases by the end of 2023.
“We’re likely to need a couple more rate hikes over the course of this year to really bring inflation” back to the US central bank’s 2% target, San Francisco Fed President Mary Daly said at a Brookings Institution event, echoing the most widely held view among her rate-setting colleagues at the Fed.
However, although the dangers of doing too little remain bigger than those of doing too much in terms of rate rises, the two sides are becoming more balanced as the Fed approaches “the last part” of its rising cycle, according to Daly.
Fed officials are largely anticipated to raise interest rates at their meeting later this month, bringing the policy rate to the 5.25%-5.50% range.
What is less obvious is whether they will increase rates again at the September meeting, wait until November, or just remain on hold and let inflation to fall over time.
Fed Chair Jerome Powell has indicated he cannot rule out successive rate rises to cope with persistently high inflation, which has declined from a peak of 7% last year to 3.8% in May, still about double the Fed’s objective, according to the central bank’s preferred indicator, the personal consumption expenditures index.
“We still have a bit of work to do,” Fed Vice Chair for Supervision Michael Barr said at a separate event on Monday. “I’ll just say, for myself, I think we’re getting close.”
“In June, I was in the camp that we move up a little bit more, and, in assessing where things are today, I’m still in that camp,” Cleveland Fed President Loretta Mester said at a UC San Diego event.
Nonetheless, she said that “we are closer to the end of our tightening phase than the beginning.”
