Two Federal Reserve governors on Tuesday acknowledged the uncertainties surrounding the US economic picture as inflation climbs down, but offered differing perspectives on the future of interest rate decisions.
The US central bank left interest rates unchanged at 5.25 per cent to 5.50 per cent at its most recent meeting. Now, with the Fed believed to be near the end of its tightening cycle, officials are debating whether that level is sufficient to tamp down on inflation.
Fed Governor Christopher Waller believes that officials are done raising rates.
“I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2 per cent,” he said in Washington.
Economic data that has trickled in since the most recent Fed meeting has been mostly positive for the central bank.
The Consumer Price Index was unchanged in October. Mr Waller noted that there are also signs of that the job market – albeit still tight – is loosening, and that consumer spending is cooling from its third-quarter pace.
“I am encouraged by what we have learnt in the past few weeks – something appears to be giving, and it's the pace of the economy,” Mr Waller said.
He also explained there is still “significant uncertainty about the pace of future activity”, which reflects recent Fed meeting minutes showing that officials have considered the risks of either tightening too much or not enough.
In a separate speech in Utah, Fed Governor Michelle Bowman suggested that the central bank's current target range is not at a restrictive enough level to bring inflation back to the long-term goal.
“My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2 per cent target in a timely way,” Ms Bowman said.
Ms Bowman – one of the Fed's most hawkish members – said her stance is data dependent and that monetary policy can change.
She also sees “an unusually high level of uncertainty” with respect to the labour market, supply chains, consumer consumption and reaction to higher interest rates.
An overwhelming amount of traders expect that the Fed is done raising interest rates and will leave them unchanged at the conclusion of its December 12-13 meeting.