The first public commentary after this week’s Federal Reserve meeting came from the hawkish side of the committee. St. Louis Fed President Alberto Musalem said on Friday that he judges additional firming of monetary policy will be necessary, and soon, arguing that incremental adjustments made earlier are usually less disruptive than larger and abrupt actions taken later. Moving sooner in smaller steps while inflation expectations are anchored, he said, has a better chance of succeeding without adverse impact on the labour market or economic growth.
Dallas Fed President Lorie Logan went further and named a number. It remains clear to her, given the current outlook, that the Federal Open Market Committee needs to implement at least two more 25 basis point rate increases, she said in the text of a speech at Davidson College. Reuters reported that a trio of officials made the case for more increases on Friday, the first round of central banker commentary after the meeting that left short term borrowing costs steady.
Musalem’s argument was that policy is not currently tight enough to do the work. Inflation remains too high relative to the 2 percent target with ongoing risks to the upside, he said, and it was unlikely to ease absent Fed action. He said monetary policy is not in a position to lower inflation at the current moment, and that policy and financial conditions remain accommodative even though financial conditions tightened recently.
The voting arithmetic matters. Musalem does not hold a vote on the policy setting committee this year, though he will be a voter in 2027. Logan does vote on the December decision. At the October 28 meeting the Fed left its policy rate unchanged in the 3.75 to 4.00 percent range, two policymakers dissented in favour of a rate hike, and markets expect another increase in short term borrowing costs at the December meeting. The speeches move that expectation from pricing into officials’ own words.