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Two Federal Reserve regional bank presidents stated on Friday that interest rates will need to move higher to rein in inflation. The remarks from St. Louis Fed President Alberto Musalem and Dallas Fed President Lorie Logan follow the central bank’s decision on Wednesday to leave rates unchanged for the time being.
Upcoming Rate Hikes Expected
Musalem stated that another rate hike must happen soon, while Logan predicted the central bank will need to implement quarter-point increases at least two more times. According to CME’s FedWatch tool, Fed funds futures traders are currently pricing in a roughly 76% likelihood of a quarter percentage point rate lift at the upcoming December gathering.
Musalem told a gathering of economists in New York that additional firming of monetary policy is necessary and should happen soon. He noted that moving earlier in smaller steps while inflation expectations remain anchored has a better chance of succeeding without harming the labor market or economic growth.
Logan explained at Davidson College in North Carolina that skipping a meeting does not change the ultimate monetary policy destination. She added that once the predicted two rate hikes take place, pausing to examine economic and financial developments to decide on further action would make sense in her view. Logan will vote on the December rate decision, whereas Musalem serves as a non-voting committee member until 2028.
Economic Resilience and Inflation Concerns
Musalem described the U.S. economy as resilient, pointing to GDP data showing a stronger-than-expected growth rate of 3.4%. He credited factors such as the artificial intelligence buildout and accommodative financial conditions, while noting that the labor market is stable and balanced with an unemployment rate of 4.2%.
However, Musalem warned that inflation remains too high, referencing annual inflation figures above 3% from the personal consumption expenditures price index. He emphasized that the best monetary policy can do for employment and economic growth is to restore price stability promptly.
During Wednesday’s decision, two of the twelve FOMC voters dissented by wanting a quarter-point rate increase: Governor Lisa Cook and Cleveland Fed President Beth Hammack.
Former Officials Weigh In
Speaking on US Top News and Analysis (cnbc.com), former Richmond Fed President Jeffrey Lacker stated he would have favored a rate hike this week, expressing surprise at the central bank’s lack of urgency given persistent inflation. A December increase would follow a quarter-point hike in September, which marked the first borrowing cost increase since 2023.
Meanwhile, former St. Louis Fed President James Bullard told US Top News and Analysis (cnbc.com) that he disagreed with Federal Reserve Chairman Kevin Warsh’s plan to designate certain meetings for broader strategy rather than live rate decisions. Warsh announced plans for strategy-focused meetings in 2027 and 2028 without rate decisions or statements. Bullard argued that skipping meetings is unwise in a volatile world because it might force the calling of special meetings. Lacker similarly suggested taking the opposite approach by holding more meetings to relieve pressure.
