Federal Reserve Policymakers Consider Additional Interest-Rate Hikes

Federal Reserve Governor Michelle Bowman gives her first public remarks as a Fed policymaker at an American Bankers Association conference in San Diego, Calif., on Feb. 11, 2019. (Ann Saphir/Reuters)

Federal Reserve policymakers recently stated that additional interest-rate hikes were likely needed in the wake of July’s increase.

Central bank officials will review a new batch of economic indicators between now and the rate policy meeting in September of the Federal Open Market Committee (FOMC), before making a decision.

The Fed raised interest rates last month for the eleventh time since March 2022 as it attempts to move inflation toward its inflation target of 2 percent.

The baseline interest-rate range was hiked by 25 basis points, to 5.25–5.5 percent.

High interest rates are squeezing millions of American households by raising rates on mortgages, adding to credit card debt, and making it harder to obtain a loan.

New York Fed President Calls Rate Hike in September an Open Question

New York Federal Reserve Bank president John Williams told The New York Times that a rate hike at the next meeting in September was an “open question,” as some of his peers consider a halt in increases as interest rates hit a 22-year high.

“I think we’re pretty close to what a peak rate would be, and the question will really be—once we have a good understanding of that—how long will we need to keep policy in a restrictive stance, and what does that mean,” Mr. Williams said.

Mr. Williams told The Times that he has yet to decide on whether he would support another interest-rate hike next month, but he refused to rule out the possibility that more interest rates could come as early as next year, depending on the economic situation.

The Fed president said he would be closely watching the next batch of data in September, particularly core inflation.

Inflation has fallen from its June 2022 peak of 9.1 percent, to 3 percent in June 2023, according to the Department of Labor’s Consumer Price Index.

The consumer price data for July is expected to be published on Aug. 10.

Meanwhile, the core Personal Consumption Expenditures index, the Fed’s preferred measure of inflation, which excludes relatively volatile food and energy costs, dropped to 4.1 percent in June.

A strong jobs report last week saw the unemployment rate fall to a near-record low of 3.5 percent, as wage growth remained steady.

The New York Fed chief said he expected unemployment to rise above 4 percent next year.

Fed Governor Says That Interest-Rate Increases Are Likely Needed

Federal Reserve governor Michelle Bowman warned at a “Fed Listens” event in Atlanta, Georgia, on Aug. 7, that additional interest-rate increases “will likely be needed.”

Ms. Bowman said while the American economy has made “progress in lowering inflation over the past year,” levels remain above the FOMC’s target of 2 percent.

However, she said that the labor market “continues to be tight,” as job openings still exceed the number of workers.

“Economic activity has grown at a moderate pace, and even as banks have been tightening their lending standards in response to higher interest rates and funding costs, lending to businesses and households has continued to expand,” said Ms. Bowman.

“Given these developments, I supported raising the federal funds rate at our July meeting, and I expect that additional increases will likely be needed to lower inflation to the FOMC’s goal,” she added.

Ms. Bowman added that she would be “looking for evidence that inflation is on a consistent and meaningful downward path” to determine if future increases were needed.

“I know that high inflation has been a hardship, especially for lower- and middle-income families, who spend the majority of their income on necessities,” she said.

“Returning inflation to 2 percent will help American families focus on important decisions other than inflation.”

“Addressing high inflation will ensure that it is no longer a factor for spending and investment decisions and will help put the U.S. economy on a course of ongoing economic growth and rising standards of living,” Ms. Bowman concluded.

Over Half of Americans Remain Concerned About the Economy

Fed chairman Jerome Powell told reporters after the last policy meeting in July that the central bank was no longer forecasting a recession, but added that there was still a “long way to go” before inflation was under control.

Austan Goolsbee, president of the Federal Reserve Bank of Chicago, told Bloomberg last week that the central bank it attempting to “Johnny Cash this thing” and walk a fine line between bringing down consumer prices while not triggering a recession.

Goolsbee also said that his fellow policymakers should start thinking about how long interest rates will remain high.

“We have the two-sided risks that we need to balance, making sure that we don’t do too much and weaken the economy too much—more than we need to in order to achieve our goals—and at the same time make sure that we do enough to make sure that we convincingly bring inflation back to 2 percent,” Mr. Williams told The Times.

A survey conducted by CNN on Aug. 5 found that 51 percent of Americans said that the economy is on a downward trajectory and that conditions are continuing to worsen.

Another 28 percent said an economic recovery has yet to start, but conditions were no longer getting worse.