Following the US Federal Reserve's (Fed) decision to keep its policy rate steady in the 3.75-4 percent range, a new message regarding interest rate hikes has come from two regional Fed presidents. Dallas Fed President Lorie Logan and St. Louis Fed President Roberto Musalem stated that additional tightening in monetary policy is needed for inflation to return to its target.
The Fed did not change interest rates at its meeting on Wednesday. While the decision was taken with a 10-to-2 vote, Fed Chair Kevin Warsh stated that they wanted to see more economic data before taking a new step.
EMPHASIS ON ADDITIONAL HIKES FOR INFLATION
Speaking at Davidson College, Logan argued that the current interest rate level is not sufficient to return inflation to the 2 percent target. According to Logan, the federal funds rate target range is at least 50 basis points below the level that would provide the necessary restriction in the economy.
Logan said that unless an unexpected slowdown is seen in the economy, inflation could remain above the target without at least two 25-basis-point hikes. The Dallas Fed President expressed that after these steps, interest rates could be held steady and the economic outlook could be re-evaluated.
St. Louis Fed President Musalem also gave a similar message in his speech in New York. Musalem announced that more monetary tightening is necessary for a permanent decline in inflation and that he expects this to come to the agenda in the near term.
According to Musalem, raising interest rates earlier and in smaller steps could limit the potential negative effects on the labor market and growth. This approach shows that the debate within the Fed regarding the timing and pace of interest rate hikes continues.
The Fed raised its policy rate by 25 basis points in September to the 3.75-4 percent range; this step was the first interest rate hike in three years. At the September meeting, 16 of the 18 Fed officials had indicated that they expected one more interest rate hike within the year.
The impact of artificial intelligence investments on the economy is also being monitored in the debate on monetary policy. Richmond Fed President Tom Barkin stated that if demand driven by artificial intelligence remains strong, the Fed might need to take measures against it. The Fed's next interest rate meeting will be held on December 8-9.
News Source: 12punto
