More US interest rate rises may be needed to bring down US inflation, says Fed governor

Price increases and tight labour market continue to weigh on officials' minds

The Federal Reserve building in Washington. Reuters

Fresh interest rate rises could be on the way to bring US inflation down to the Federal Reserve's 2 per cent goal, its governor Michelle Bowman said on Monday.

The Fed last month raised its benchmark interest rate to the target range of 5.25 to 5.5 per cent. Speaking at a “Fed Listens” sessions in Atlanta, Ms Bowman said she supported the decision because of persistent inflation and a tight labour market.

“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 [Federal Open Market Committee] goal,” she said.

“I will be looking for evidence that inflation is on a consistent and meaningful downwards path as I consider whether further increases in the federal funds rate will be needed, and how long the federal funds rate will need to remain at a sufficiently restrictive level.”

Traders expect July's quarter-point increase to be the central bank's last this year, data from the CME Group shows. A handful of economic data remains to come in before the Fed next meets in September, including this week's inflation report.

US inflation sits at 3 per cent on a year-on-year basis, Labour Department figures show. While it has fallen significantly since last summer, it still remains above the Fed's long-term target.

Unemployment in the US also remains at a near-historic low, dipping to 3.5 per cent in a report last week. Job growth has cooled but remains steady, and wage growth remains above inflation.

Fed chairman Jerome Powell has previously indicated the central bank will take a data-driven approach on a meeting-by-meeting basis to determine its monetary policy.

In a separate interview with The New York Times published on Monday, Federal Reserve Bank of New York president John Williams said whether or not another rate increase is needed is an “open question”.

He also echoed Mr Powell's view that adjusting policy will depend on incoming data, saying that “monetary policy is in a good place”.

Mr Williams also said he thought the central bank should keep a restrictive monetary policy stance for some time and cut rates “next year, or year after”.

Projections released by the Fed in June predict the federal funds rate will fall to 4.6 per cent by the end of 2024 and 3.4 per cent by end of 2025.