Musalem and Logan call for more rate hikes after Fed pause
Musalem says tightening is needed soon. Logan favors at least two more quarter-point increases, while allowing gaps between moves.
Two Federal Reserve officials argued on Friday that interest rates need to rise further to bring inflation back to target, even after the central bank left rates unchanged this week. St. Louis Fed President Alberto Musalem called for additional tightening soon, while Dallas Fed President Lorie Logan said at least two more quarter-point increases are needed under her current outlook.
The remarks are individual policymakers' views, not a new Federal Open Market Committee decision. The Fed's target range remains 3.75% to 4%, following this week's decision to hold it steady.
Musalem favors smaller moves sooner
In prepared remarks for a Shadow Open Market Committee meeting in New York, Musalem said he judged further tightening necessary soon. He argued that earlier, incremental adjustments are usually less disruptive than delaying and later needing larger, abrupt moves.
Musalem described the labor market as stable and balanced around full employment, but said inflation remained too high. His more likely scenario is that inflation stays meaningfully above 2% without further removal of monetary-policy accommodation.
He also set out a less likely scenario in which inflation could converge to target without more tightening. Lower energy and shipping costs, stronger productivity, weaker demand or a sharp tightening of financial conditions could change the picture. His preference for further increases is therefore an assessment of the outlook, not a claim that only one economic outcome is possible.
Logan separates the destination from the timing
Speaking to Davidson College students, Logan said her current assessment puts the target range at least half a percentage point below a level that would create modest restraint. She said the FOMC needs at least two more increases of 25 basis points each, after which it would make sense to pause and review economic and financial developments.
Logan said skipping a meeting does not change the policy destination. She supported this week's hold and argued that moving more gradually amid volatile financial markets could help households, businesses and investors adapt while limiting unnecessary damage to economic activity.
Her proposed pause after further increases is conditional. Logan said she would change her policy views if the outlook and risks changed. Neither speech commits the full committee to a December increase or to a fixed sequence of future moves.
The speeches sharpen the debate following Friday's labor-cost report and Thursday's growth and inflation data. The officials' concern is whether policy is restrictive enough to return inflation to 2%, rather than whether economic growth alone is good or bad.
