WASHINGTON — The stubbornness of high inflation is dividing the Federal Reserve over how to manage interest rates in the coming months, leaving the outlook for the Fed’s policies cloudier than at any time since it unleashed a streak of 10 straight rate hikes beginning in March 2022.
Many Fed watchers have expected the central bank’s officials to forgo another increase in their benchmark rate when they next meet in mid-June. Yet recent warnings from several of the officials about the continuing threat from high inflation suggest that that outcome is far from certain.
And on Thursday, Lorie Logan, president of the Federal Reserve Bank of Dallas, said she believes that the economic data so far doesn’t support a pause in the central bank’s rate hikes next month.
“The data in coming weeks could yet show that it is appropriate to skip a meeting,” Logan said in written remarks to the Texas Bankers Association. “As of today, though, we aren’t there yet.”
On inflation, she said, “We haven’t made the progress we need to make.”
No Fed officials have yet gone so far as to suggest that the Fed will likely cut rates this year. The financial markets, by contrast, have continued to bet that policymakers will feel compelled to cut interest rates twice by the end of 2023.
“They would like to go on hold and pause, but … if need be, raising rates further is an option,” said Kathy Bostjancic, chief economist at Nationwide. “It comes down to the fact that inflation’s remaining so stubbornly high.”
Among Fed officials, though, that sentiment is hardly unanimous. Some have stressed the need to pause rate hikes for an extended period.
The idea is to give the rate increases time to exert their full effects on growth and inflation. Behind that view is the concern that if the Fed keeps making borrowing costs ever-more expensive, it could cause a deep recession.