(Oct 31): A trio of US Federal Reserve (Fed) officials reaffirmed the need for additional interest-rate hikes while counseling a gradual approach to tightening that would minimise disruptions to financial markets and the economy.

“It remains clear to me, given the current outlook, that the FOMC (Federal Open Market Committee) needs to implement at least two more 25-basis-point rate increases,” Dallas Fed president Lorie Logan said on Friday. “Adjusting policy more gradually can help households, businesses and market participants adapt to higher rates and reduce the risk that economic activity deteriorates more sharply than necessary.”

Logan’s speech at Davidson College, along with similar remarks from Richmond Fed president Tom Barkin and the St Louis Fed’s Alberto Musalem, followed a decision on Wednesday by the US central bank’s FOMC to leave its benchmark interest rate unchanged. The FOMC previously voted in September to raise the rate for the first time since 2023.

The Dallas Fed chief, who holds a vote on rate decisions this year, said “skipping a meeting does not change the monetary policy destination”.

Barkin, speaking in a radio interview on Friday on SiriusXM, said “a gradual approach is a good way to go”, while Musalem at an event in New York argued “incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later”.

Most Fed officials, in projections published after the September meeting, viewed an additional rate hike this year as likely necessary. Investors now see that happening at the Fed’s last meeting of the year on Dec 8-9, according to future contracts, which also indicate they will likely opt for another pause in January and then consider a third rate hike in March.

On Wednesday, Fed chairman Kevin Warsh refrained from revealing his outlook for the economy or interest rates, but said elevated inflation is still the central bank’s main focus. He also described financial conditions as tighter following the rate hike in September, while adding that he is “unwilling and unable to call them tight”.

Friday’s remarks suggested there may be a growing consensus on the need to deliver more tightening in a gradual manner. Logan voted with the majority on this week’s decision to hold rates steady after dissenting against a similar decision in July, and Barkin will re-enter the voting ranks of the FOMC in 2027.

Still, Wednesday’s vote also saw two dissenters who instead favoured a second consecutive increase this month: Fed governor Lisa Cook and Cleveland Fed president Beth Hammack.

The central bank is seeking to bring down inflation that has been above its 2% target for more than five years. Data published on Thursday showed the Fed’s preferred measure accelerated to 3.6% in September amid a renewed rise in oil prices.

A separate report on Thursday also indicated the economy expanded in the third quarter at the fastest pace in a year on strength in consumer spending and business investment, which is being driven by the boom in spending related to artificial intelligence.

“If we do see a continued surge in demand, that would be the kind of thing you might want to lean against,” Barkin said.

Logan said that after the two additional rate increases she is projecting, the Fed should pause to assess economic and financial developments, and to determine whether further hikes are necessary. 

“The end goal should be to make policy modestly restrictive so we can sustainably deliver both maximum employment and stable prices,” she said. 

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