Two Federal Reserve presidents said Friday that interest rates need to rise further to tame inflation, with one urging another increase “soon” and the other predicting at least two more quarter-point hikes, days after the central bank left rates unchanged.
St. Louis Fed President Alberto Musalem told the Shadow Open Market Committee in New York that "additional firming of monetary policy will be necessary, and soon." Dallas Fed President Lorie Logan, speaking to students at Davidson College in North Carolina, said it remains clear to her that the Federal Open Market Committee needs to implement at least two more 25-basis-point rate increases.
The remarks offered the first morsels of insight into what Fed leaders see next. Fed funds futures traders are pricing in a roughly 76% likelihood of a quarter-point hike at the December meeting, according to CME's FedWatch tool.
Musalem argued for acting earlier in smaller steps, saying that approach "has a better chance of succeeding without adverse impact on the labor market or economic growth" while inflation expectations are anchored. Logan said the Fed does not have to raise rates at every meeting, adding that "skipping a meeting does not change the monetary policy destination." After the projected two hikes, she said, it would make sense in her view to pause and examine economic and financial developments to determine what further action may be appropriate.
Musalem described the U.S. economy as “resilient,” pointing to Thursday's GDP report showing a stronger-than-expected 3.4% growth rate, the artificial-intelligence buildout and financial conditions that remain accommodative. He called the labor market “remarkably stable and balanced”; he noted that the unemployment rate of 4.2% sits at the median of long-run projections by FOMC participants. But he warned that inflation is “too high,” citing the personal consumption expenditures price index released Thursday showing annual inflation above 3%, and said there is a likely scenario where inflation remains above 2% unless the Fed adjusts policy. He said he is watching core inflation closely and is on alert for signs that current inflationary pressures are broadening.
Logan will be among the Fed officials voting on the December rate decision; Musalem is slated to be a non-voting member of the committee until 2028.
Analysis
Why This Matters
- Fed rate decisions directly affect borrowing costs for households and businesses, from mortgages to credit cards, and ripple through global financial markets.
- The December meeting will signal how long the Fed expects inflation to stay above its 2% target and how much further it is willing to go.
- Musalem argues that smaller, earlier steps can reduce inflation without damaging the labor market or economic growth, a key question for workers and investors alike.
Background
The Federal Open Market Committee sets the federal funds rate, the benchmark for borrowing costs across the U.S. economy. After a period of rate increases, the Fed paused on Wednesday, leaving rates unchanged. These comments from Musalem and Logan are the first signals about whether that pause will be brief. Inflation remains above the Fed's 2% target, with the PCE price index showing annual inflation above 3%.
Key Perspectives
Alberto Musalem (St. Louis Fed): Says additional firming of monetary policy is necessary "and soon," and that moving sooner in smaller steps while inflation expectations are anchored gives the best chance of succeeding without adverse impact on the labor market or growth.
Lorie Logan (Dallas Fed): Says the FOMC needs at least two more 25-basis-point rate increases, though not necessarily at every meeting; after those hikes, the Fed should pause and examine economic and financial developments.
What to Watch
- The December FOMC meeting, where investors currently price in about a 76% chance of a quarter-point hike.
- Core inflation data, which Musalem said he is watching closely for signs that price pressures are broadening.
- Whether the economy stays resilient: Musalem cited 3.4% GDP growth and a stable labor market as factors that could shape how far the Fed goes.
Checked
12 claims in this story checked against 1 source: 12 supported.
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- SupportedTwo Federal Reserve presidents said rates need to rise further to rein in inflation.US Top News and Analysis: “Two Federal Reserve presidents on Friday said interest rates will need to move higher to rein in inflation.”
- SupportedMusalem described inflation as “too high.”US Top News and Analysis: “But Musalem warned that inflation is "too high," citing the personal consumption expenditures price index released Thursday that showed annual inflation above 3%.”
- SupportedMusalem urged another increase soon, while Logan said at least two more quarter-point increases were needed.US Top News and Analysis: “The St. Louis Fed's Alberto Musalem said another rate hike will need to happen soon. And Lorie Logan of the Dallas Fed predicted that the central bank will need to raise rates by quarter-point increments at least two more times.”
- SupportedThe remarks came days after the central bank left rates unchanged.US Top News and Analysis: “The comments from the two officials offer the first morsels of insight into what leaders at the Fed see next after the central bank on Wednesday elected to leave rates unchanged for now.”
- SupportedMusalem told the Shadow Open Market Committee in New York that “additional firming of monetary policy will be necessary, and soon.”US Top News and Analysis: “"I judge that additional firming of monetary policy will be necessary, and soon," Musalem said in prepared remarks for the Shadow Open Market Committee, a gathering of economists in New York focused on the central bank.”
- SupportedLogan told students at Davidson College that the FOMC needed at least two more 25-basis-point rate increases.US Top News and Analysis: “In remarks roughly an hour later, Logan said: "It remains clear to me, given the current outlook, that the FOMC needs to implement at least two more 25-basis-point rate increases."”
- SupportedTraders were pricing in about a 76% likelihood of a quarter-point hike at the December meeting, according to CME's FedWatch tool.US Top News and Analysis: “Fed funds futures traders are pricing in a roughly 76% likelihood of the Fed lifting rates by a quarter percentage point at that gathering, according to CME's FedWatch tool.”
- SupportedMusalem said acting sooner in smaller steps while inflation expectations are anchored has a better chance of avoiding harm to employment and growth.US Top News and Analysis: “"Moving sooner in smaller steps while inflation expectations are anchored has a better chance of succeeding without adverse impact on the labor market or economic growth."”
- SupportedLogan said skipping a meeting does not change the monetary-policy destination.US Top News and Analysis: “"Skipping a meeting does not change the monetary policy destination," Logan told students at Davidson College in North Carolina, according to her prepared remarks.”
- SupportedAfter the projected two hikes, Logan said it would make sense to pause and examine economic and financial developments.US Top News and Analysis: “After the predicted two rate hikes, Logan said, "it would make sense in my view to pause and examine economic and financial developments to determine what further action may be appropriate."”
- SupportedMusalem described the economy as resilient and pointed to a stronger-than-expected 3.4% GDP growth rate.US Top News and Analysis: “He pointed to Thursday's data on U.S. GDP, which showed a stronger-than-expected growth rate of 3.4%.”
- SupportedLogan would vote on the December rate decision, while Musalem was slated to be a non-voting committee member until 2028.US Top News and Analysis: “Logan will be among the Fed officials voting on the rate decision in December; Musalem is slated to be a non-voting member of the committee until 2028.”
