Bloomberg News reports that at least two US Federal Reserve officials believe there might be one more hike in interest rates. They also feel that borrowing costs will need to be higher for a longer period so that the central bank can ease inflation and bring it back to the target of 2%.
Another tightening possible
Susan Collins, the Fed president, further stated that tightening is possible and is not off the table. However, Michelle Bowman sent signals that more than one hike might likely be needed. This has labeled her as one of the most hawkish Federal Open Market Committee members.
Ms. Bowman stated that she anticipates that if there is a rate hike, it might bring inflation back to the target 2% timely. She made the statement at the Independent Community Bankers of Colorado, which took place at Vail Friday.
The FOMC on Wednesday held the target range for the federal funds rate between 5.25% and 5.5%. This is a 22-year high, and new quarterly projections indicated that 12 of the 19 favored yet another rate hike in the current year. This led to underscoring the desire to ensure that inflation continues to decelerate.
One of the policymakers sees the rates attaining their peak way above 6% next year. On the other hand, central bankers see fewer cuts compared to what was anticipated earlier in 2024, in part because of a stronger labor market. The comments of Ms. Bowman suggest that there might be the highest hike in interest rates next year.
Ms. Collins, who usually does not vote in the decisions related to monetary policy, said that she agrees and supports the guidance offered in the Fed officials’ quarterly economic projections.
What is the risk of attaining the 2% target?
Bloomberg News reports that Ms. Bowman said that although good progress has been registered in lowering inflation, the higher energy costs pose a risk for attaining the 2% inflation target.
The Fed governor has observed that Monetary policy has less bite on lending activities than might be anticipated. She also said that although the bank lending standards have become stringent, there has been no noticeable contraction in credit, which would otherwise hint at the economy being slow.
Separately, San Francisco Fed president Mary Daly on Friday said that she is not ready yet to declare victory against inflation. And this is because the central bank is still planning to curb the price pressures but in a gentle way.
Ms. Daly did not vote on decisions related to monetary policies this year. It revealed that policymakers have decided to hold the rates steadily. This would allow them to get more time to collect the information that is required. However, she declined to comment on whether the Fed would be lifting the rates once more in the current year. Most of the officials already anticipated this.
