Federal Reserve officials back rate rise pause in September

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Senior Federal Reserve officials signalled on Thursday that the US central bank would hold interest rates steady at its meeting in September, even as they resisted declaring victory in their fight against inflation.

Lorie Logan, president of the Dallas Fed and voting member on the Federal Open Market Committee, became the latest official to signal support for the central bank to keep its benchmark rate at a 22-year high when the FOMC gathers later this month.

“I’m not yet convinced that we’ve extinguished excess inflation. But in today’s complex economic environment, returning inflation to 2 per cent will require a carefully calibrated approach — not endless buckets of cold water,” she said at a Dallas Business Club event.

Logan lauded the decision to slow the pace of rate rises at the June meeting, when the Fed skipped an increase only to resume tightening in July.

“Another skip could be appropriate when we meet later this month,” she said.

Logan, who is considered one of the Fed’s most hawkish officials, also cited the recent tightening of financial conditions as potentially offsetting the need for further rate rises, even though she maintained that momentum in the labour market and economy remained strong.

Logan’s comments followed those from John Williams, president of the New York Fed and a permanent FOMC voter, who on Thursday said that monetary policy was in a “good place”.

Williams said the Fed would be closely parsing incoming data as it determines whether or not the fed funds rate is at a level considered “sufficiently restrictive” to get inflation under control in a timely fashion.

In the clearest indication that the Fed may need to tighten money supply later in the year, Logan emphasised that the recent easing of price pressures would not necessarily translate to “low-enough inflation”, adding that there was “work left to do”.

After 11 interest rate increases since March 2022, the federal funds rate hovers between 5.25-5.5 per cent. Jay Powell, the Fed chair, has also said the central bank should approach further decisions “carefully”.

Christopher Waller, another hawkish Fed governor, is also on board with this approach. He said this week that US economic data did not suggest the Fed needed to do anything “imminent” in terms of monetary tightening, though it was too early to say whether the recent moderation in inflation represented a “trend” or just a “fluke”.

“I want to be very careful about saying we’ve kind of done the job in inflation until we see a couple of months continuing along this trajectory,” Waller told CNBC in an interview on Tuesday.