Several Federal Reserve Officials Mull 11th Round of Rate Hikes

The U.S. Federal Reserve building is seen past caution tape in Washington on Sept. 19, 2022. Stefani Reynolds/AFP via Getty Images

Several Federal Reserve officials are open to at least one more interest rate hike in the coming months to cool inflation.

Several top policymakers have publicly spoken in favor of returning to the hawkish policy of the previous year at the next meeting in June, reported Fox Business.

However, the central bank has come under increasing fire for raising recession risks by aggressively boosting interest rates, which has caused worries on Wall Street regarding a deep recession.

Many top CEOs and economists have criticized the Fed’s decision making in recent weeks and for not acting early enough when price pressures were still building.

The Fed raised the borrowing rate for the tenth consecutive time to 5 to 5.25 percent in May, the highest since 2007.

Still, inflation unexpectedly jumped 0.4 percent to 4.9 percent in April after months of declines.

The U.S. inflation rate is more than twice the Fed’s 2 percent target but well below the peak of 9.1 percent in June 2022.

The labor market also remains tight, with unemployment falling to 3.4 percent last month, the lowest rate since 1969.

After prematurely stating that inflation was getting under control earlier this year, Fed policymakers have warned that inflation was still too high for a pause in the central bank’s tightening campaign, despite pleas from some economists to take a wait-and-see approach.

Despite the recent declines in inflation, some central bank officials say that another hike is increasingly likely.

“I think we’re going to have to grind higher with the policy rate in order to put enough downward pressure on inflation and to return inflation to target in a timely manner,” St. Louis Federal Reserve President James Bullard said in a Monday speech delivered to the American Gas Association in Florida.

“I’m thinking two more moves this year—exactly where those would be this year I don’t know—but I’ve often advocated sooner rather than later.”

Lorie Logan, president and CEO of the Federal Reserve Bank of Dallas, attends a dinner program at Grand Teton National Park where financial leaders from around the world gathered for the Jackson Hole Economic Symposium outside Jackson, Wyo., on Aug. 25, 2022. Jim Urquhart/Reuters

Dallas Fed President Lorie Logan agreed that inflation was “much too high” and not cooling quickly enough to justify a pause in interest rate hikes at the Fed monetary policy meeting in June.

“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” she said in remarks prepared for delivery to the Texas Bankers Association in San Antonio.

“The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”

Minneapolis Fed President on the Fence

Minneapolis Fed President Neel Kashkari, a member of the Federal Open Market Committee, told CNBC on May 23 that although he is open to pausing interest rates at the next policy meeting, he is still open to a rate hike.

He stated that would not take future rate hikes off the table, even if officials choose to pause the increases next month.

“I think right now it’s a close call, either way, versus raising another time in June or skipping,” he said during the interview with CNBC.

President of the Federal Reserve Bank of Minneapolis, Neel Kashkari, listens to a question during an interview in New York on March 29, 2019. Shannon Stapleton/Reuters

“What’s important to me is not signaling that we’re done,” he said, adding, “if we were to skip in June, that does not mean we’re done with our tightening cycle; it means to me we’re getting more information. Do we then start raising again in July, potentially?”

“The cost of not getting inflation down to 2 percent is much higher to Main Street than the cost of getting it down to 2 percent,” Kashkari continued.

“So I would rather err on being a little bit more hawkish rather than regretting it and having been too dovish.”

However, he said he was sensitive to the delayed impact of the Fed’s rapid rate increases and a potential credit crunch due to the ongoing banking crisis, which began in March.

These latest comments from top Fed officials have raised the probability of an 11th rate hike in June, even though investors have bet on the Fed taking a break from raising rates for that month.

However, the probability that the Fed will raise rates in June rose to 26.8 percent yesterday, up from 17.4 percent the previous week, according to data from CME Group’s FedWatch.

Powell Faces Critics

Meanwhile, Fed Chairman Jerome Powell told the Perspectives on Monetary Policy panel at the Thomas Laubach Research Conference on May 19 that the Fed funds rate may not need “to rise as much” to achieve its inflation goals but agreed that prices were still too high.

After the last meeting in early May, Powell said that the Fed may decide not to raise rates so to better study the effects of the rapid increases.

“A decision on a pause was not made today,” said Powell, reiterated that the Fed’s future policy decisions would “be driven by incoming data, meeting to meeting.”

Federal Reserve Board Chairman Jerome Powell delivers remarks at a news conference following a Federal Open Market Committee meeting in Washington on May 3, 2023. Anna Moneymaker/Getty Images

Powell said that the tightening of credit standards after the recent bank failures could weigh on economic growth, hiring, and inflation but that the Fed’s financial stability tools can calm any volatility in the banking system.

Powell said that “overall the banks and the banking system are strong and resilient,” but acknowledged that the disruption to the financial sector from the series of bank runs could impact the central bank’s policy decisions.

The chairman has been repeatedly attacked for misjudging the rise in inflation as “transitory” in 2021.

He was then forced to go on the aggressive interest rate hike spree within months of such a stance, as consumer prices rose at the fastest pace since the early 1980s.

Musk Weighs In

“My concern with the way that the Federal Reserve is making decisions is that they are just operating with too much latency,” Twitter CEO Elon Musk and a major critic of Powell, told CNBC on May 23.

“Basically, the data is somewhat stale, so the Fed was slow to raise interest rates. And now I think they’re going to be slow to lower them.”

Musk called the Fed’s rate hikes a ‘brake pedal’ on the economy that is making things too expensive for those using credit, which will have “downstream effects” on the economy.

Mohamed El-Erian, chief economic adviser at Allianz, told Bloomberg on May 23 that “we are still in the hospital because there are problems with the banking model of certain banks.”

El-Erian is concerned over the situation faced by regional American banks and is opposed to pushing ahead with another strong rate hike too quickly, which will hit businesses tied to the commercial real estate industry.

“The key issue now is to allow the patients that are in the hospital to come out. If there’s another [Fed] policy mistake, the patient goes back into the ICU,” he added.