Inflation Remains High as Calls for Further Rate Hikes Mount Within Fed

【Financial News, New York—Lee Byung-chul, Correspondent】Just two days after the U.S. Federal Reserve (Fed) held its benchmark interest rate steady, calls for further rate hikes emerged in succession from within the Fed. Some Fed officials stressed the need for rate hikes soon, saying inflation remains elevated.
According to CNBC, on the 30th (local time), Dallas Fed President Lorie Logan said in a speech at Davidson College in North Carolina that day, “Given the current economic outlook, it is clear that the Federal Open Market Committee (FOMC) should raise the benchmark rate by 0.25 percentage points at least twice more.”
Logan explained, however, that rates need not be raised at every meeting. Logan said, “Skipping a rate hike at one meeting does not change the ultimate destination of monetary policy,” adding, “After two rate hikes, it would be reasonable to assess economic and financial market conditions and determine whether further action is needed.”
Logan’s remarks carry weight because Logan will have a vote at the FOMC meeting in December.
St. Louis Fed President Alberto Musalem also stressed the need for an early rate hike at a gathering of economists in New York that day. Musalem said, “I believe further monetary policy tightening is needed, and that the time for it is not far off.”
Musalem said, “Making a small adjustment early has less impact on the economy than raising rates sharply and suddenly later,” adding, “Acting preemptively while inflation expectations remain stable can reduce the adverse effects on the labor market and economic growth.”
Musalem said the U.S. economy remained robust. GDP growth in the third quarter of this year came in at 3.4%, above market expectations, while unemployment remained at a stable 4.2%.
He expressed concern about inflation, however. Referring to the fact that the personal consumption expenditures (PCE) price index inflation rate topped 3% in figures released the previous day, Musalem said, “Inflation is still too high.” He warned that without further monetary policy tightening, inflation could remain above the Fed’s 2% target for an extended period.
At its FOMC meeting on the 28th, the Fed held its benchmark rate steady at an annual range of 3.75% to 4.00%. However, two of the 12 voting members—Fed Governor Lisa Cook and Federal Reserve Bank of Cleveland President Beth Hammack—dissented, calling for a 0.25-percentage-point increase. Differences over monetary policy have surfaced within the Fed, which had voted unanimously to raise rates last September.
Market attention is shifting to the December FOMC meeting. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the federal funds futures market is pricing in about a 76% probability of a 0.25-percentage-point rate hike in December. If the increase goes ahead, it would be the second rate hike this year, following September’s.


[email protected] Correspondent Lee Byung-chul Reporter