Senior US Fed Official Backs More Monetary Tightening

A member of the US Federal Reserve's rate-setting committee said Thursday that she supported additional monetary tightening, as policymakers weigh more measures to rein in stubborn inflation in the world's biggest economy.

The Federal Open Market Committee (FOMC) voted last month to pause its aggressive campaign of inflation-targeting interest rate hikes after 10 consecutive increases in order to give policymakers more time to assess the strength of the US economy.

Alongside its decision to pause hikes, the FOMC also indicated that two more quarter percentage-point increases to its benchmark lending rate will likely be necessary this year to bring inflation down to the long-term target of two percent.

"At this point, it is important for the FOMC to follow through on the signal we sent in June," Dallas Fed president Lorie Logan told a conference in New York.

"To have confidence that inflation will return to target on an appropriate timetable, we need to see more than some continued very modest rebalancing," she said.

However, she said her backing for the FOMC's prediction of two additional hikes was contingent on there being no "significant unexpected events."

Minutes published by the Fed on Wednesday showed that some FOMC members had initially supported another interest rate hike last month to tame inflation, before backing off to unanimously back the pause.

On Thursday, Lorie Logan indicated she was one of them.

"In my view, it would have been entirely appropriate to raise the federal funds target range at the FOMC's June meeting, consistent with the data we had seen in recent months and the Fed's dual-mandate goals," she said, in prepared remarks

But she added that "in a challenging and uncertain environment, it can make sense to skip a meeting and move more gradually."

"Financial conditions matter more for the economy than the precise path of the policy rate," she said, explaining her decision.

Futures traders are assigning a probability of more than 90 percent that the Fed will implement the first of these hikes at its next meeting later this month, according to data from CME Group.

"Financial conditions depend not only on how fast rates rise but also on the level they reach, the time spent at that level, and, importantly, the factors that determine further increases or decreases," Logan said.