Federal Reserve officials have signaled ahead of their next policy meeting this month that they can move slowly in their fight against inflation as the labor market softens and prices tick down from pandemic highs.
That could mean a pause this month. But they have also warned that may not mean the central bank is finished raising rates.
"At this stage, I believe we must proceed gradually, weighing the risk that inflation will be too high against the risk of dampening the economy too much," Federal Reserve Bank of Dallas president Lorie Logan said in a speech Sept. 7 before the Dallas Business Club.
"Another skip could be appropriate when we meet later this month," Logan added. "But skipping does not imply stopping. In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation."
Logan's message echoed comments from other Fed officials in recent days. Boston Federal Reserve president Susan Collins said on Sept. 6 that the central bank should take its time as it looks to bring inflation down, and also warned further rate hikes could be warranted.
"This phase of our policy cycle requires patience, and holistic data assessment, while we stay the course," Collins said in a speech at the New England Council. "While we may be near, or even at, the peak for policy rates, further tightening could be warranted, depending on the incoming data."
San Francisco Federal Reserve Bank president Mary Daly also told Yahoo Finance in an August interview that while inflation is coming down, it's still too high and that there’s still more work to do. Daly left the door open to multiple options.
"Whether we raise another time [or] hold rates steady for a longer period, those things are yet to be determined," Daly said.
In July, Fed officials raised interest rates for the 11th time since March 2022, leaving potentially one more rate hike on the table based on projections outlined in June. Those forecasts will be updated later this month.
The Fed will hold its next policy meeting Sept. 19-20, and officials are expected to hold rates steady in the range of 5.25%-5.5% to see if the inflation data continues to show cooling.
Inflation has dropped from a high of just over 9% to closer to 3%, but on a core basis — stripping out volatile food and energy prices — inflation is still running around 4%, twice the Fed’s inflation target.
The Fed's preferred inflation measure — the Personal Consumption Expenditures (PCE) Index that excludes the cost of food and energy, or so-called "core" PCE — rose 4.2% over the prior year in July, up from 4.1% in June but down from the range of 4.5%-4.6% for the first half of the year.
Another gauge of inflation — the Consumer Price Index on a "core" basis — rose 4.7% in July, its slowest pace since October 2021. The August CPI report will be released on Wednesday.
Job growth is also cooling. In August, the US economy added 187,000 jobs after adding 105,000 in July and 157,000 in June.
Despite the cooler reports, the US economy has remained stronger than expected, making it too early to tell whether inflation is on a sustained path back to 2%.
Fed Chair Jerome Powell said at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyo., on Aug. 25 that the Fed is "in a position to proceed carefully" as it mulls future actions, while also leaving rate hikes squarely on the table.
"Although inflation has moved down from its peak — a welcome development — it remains too high," he said. "We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective."
Still, Powell left room for the Fed to continue to monitor the impacts of its moves over the last year before further raising rates.
"Since the symposium a year ago, the Committee has raised the policy rate by 300 basis points, including 100 basis points over the past seven months," Powell said.
"And we have substantially reduced the size of our securities holdings. The wide range of estimates of these lags suggests that there may be significant further drag in the pipeline."
Though divisions remain within the Fed on how to get inflation down to the central bank's 2% target, as some members are content to leave rates at current levels on the belief that the full effects of the Fed’s rate hikes haven’t yet been felt.
Atlanta Fed president Raphael Bostic said on Aug. 31 that he doesn’t believe interest rates need to be raised further but that the central bank should hold them at heightened levels since inflation is still too high.
"I feel policy is appropriately restrictive," Bostic said at a conference in Cape Town, South Africa. "I think we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain."
Bostic added the caveat that that does not mean he’s in favor of cutting rates anytime soon.
Philadelphia Federal Reserve Bank president Patrick Harker is also looking content to hold rates steady at these levels for some time.
Harker told Yahoo Finance in an interview at Jackson Hole that the central bank may be able to hold interest rates steady in September and keep that position for an extended period of time, allowing previous rate hikes to continue lowering inflation.
"Right now, I’d like to hold and see how things turn out," he said.