Investors may not be able to go into the next interest rate meeting with an all clear for a pause.
St. Louis Fed President James Bullard told the Financial Times Thursday that he supports raising rates higher as ‘insurance’ against inflation.
Bullard – perhaps the most hawkish member on the FOMC – told the newspaper he’d keep an “open mind” going into the June 14 meeting, but given that inflation has been slower to come down than expected, he’s inclined to back another rate hike.
“I do expect disinflation, but it’s been slower than I would have liked, and it may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control,” Bullard told the Financial Times in the interview.
“Our main risk is that inflation doesn’t go down or even turns around and goes higher, as it did in the 1970s,” he added.
Meanwhile, Dallas Fed President Lorie Logan said Thursday that as of right now a pause is not in order, though that could change in the coming weeks depending on incoming data.
“After raising the target range for the federal funds rate at each of the last 10 FOMC meetings, we have made some progress,” Logan said in a speech in San Antonio, Texas. “The data in coming weeks could yet show that it is appropriate to skip a meeting. As of today, though, we aren’t there yet.”
Logan says she remains concerned about whether inflation is falling fast enough.
“We haven’t yet made the progress we need to make,” said Logan. “And it’s a long way from here to 2 percent inflation.”
Like other Fed officials, Logan says she thinks the strength of the job market is contributing to high inflation, citing that job growth is more than twice what’s needed to keep pace with the growth of the labor force.
Though she noted some indicators like job openings and wage growth are no longer “boiling over” the way they were last year.
Logan along with other Fed officials is also watching credit conditions closely, though she and others don’t think there’s a substantial amount of tightening specifically linked to the seizures of several mid-sized banks in recent months.
Logan said that bankers have been telling the central bank since last fall that higher interest rates were the reason credit conditions were tightening. Even now bankers say that's the main reason, as opposed to stress in the banking system.
Fed Governor Philip Jefferson echoed that Thursday in a speech made in Washington, saying “so far there has been only a modest incremental tightening of lending conditions, which had already tightened considerably over the past year since the Federal Reserve began raising interest rates.”
Jefferson pointed to a Fed loan survey in April that reported 46% of banks had tightened credit terms for commercial and industrial loans, compared with 44.8% in January.
Jefferson said he too thinks inflation is too high right now, but the economy is slowing while credit conditions are tightening. He said he will take all this into account at the next interest rate meeting.
“While inflation has come down substantially since last summer, it is still too high, and by some measures progress has been slowing,” he said, suggesting that the economy hasn’t felt the full effects of the Fed’s 10 rate hikes.