A pair of top Federal Reserve officials is indicating that additional sharp interest rate hikes are on the way as the central bank scrambles to bring down decades-high inflation.
San Francisco Fed President Mary Daly said Sunday that the Fed is “far from done” in its effort to lower prices. Daly is a member of the rate-making Federal Open Markets Committee on a rotating basis, but doesn’t have a vote this year.
Daly said another half-percentage point hike was “absolutely” possible when the Fed next meets in September. The central bank has hiked its benchmark rate by a larger-than-normal three-quarters of a percentage point last month after inflation surged to 9.1%.
“We need to leave our minds open. We have two more inflation reports coming out, another jobs report,” Daly said during a Sunday appearance on CBS’s “Face The Nation.”
“Americans are losing ground every day. So the focus has to be on bringing inflation down,” Daly added.
Federal Reserve Governor Michelle Bowman also was hawkish in remarks on the economy this past Saturday – backing further rate hikes of a similar scale until inflation is tamed.
“My view is that similarly sized increases should be on the table until we see inflation declining in a consistent, meaningful, and lasting way,” Bowman said in prepared remarks for the Kansas Bankers Association, according to CNBC.
The market is betting on more strong action from the Fed following a July jobs report that indicated a red-hot labor market. US employers added 528,000 jobs in July, much more than economists have expected, while wages jumped 5.2% year-over-year.
The robust jobs report could nudge the Fed to stay the course with aggressive hikes to ensure the economy will cool enough to bring down prices.
The market currently sets a 69.5% probability of a three-quarter percentage point hike in September, according to data from CME Group.
Bowman also noted that she remains unconvinced that the economy has reached so-called “peak inflation” – even after a June Consumer Price Index that showed prices at their highest level since 1981.
“I have seen few, if any, concrete indications that support this expectation, and I will need to see unambiguous evidence of this decline before I incorporate an easing of inflation pressures into my outlook,” she added.
The Labor Department will release its July Consumer Price Index on Wednesday. Economists project a slight downtick to 8.7%, according to Dow Jones.
Fed Chair Jerome Powell said the central bank would rely heavily on data as it assesses the pace of its rate hikes in the months ahead.
“We anticipate that ongoing increases in the target range for the federal fund rates will be appropriate,” Powell said at a press conference last month. “The pace of those increases will continue to depend on the incoming data and evolving outlook for the economy.”
“While another unusually large increase could be appropriate at our next meeting, that is a decision that will depend on the data that we get between now and then,” he added.
The Fed has faced widespread criticism over its response to inflation to date, with skeptics arguing the central bank waited too long to address the problem and will likely topple the US economy into a recession with its sharp hikes.
One such skeptic is famed economist Mohamed El-Erian, who said Sunday that he expects core inflation to remain well above the Fed’s target of 2% through the end of the year.
“What I’m most worried about is the collateral damage that’s going to be associated with inflation coming down because the Fed has been so late in responding,” El-Erian told Yahoo Finance.