Three Federal Reserve officials restated the case for further interest rate increases while advocating a gradual tightening path that would minimize shocks to financial markets and the economy.
"Given the current outlook, it still seems clear to me that the Federal Open Market Committee will need to deliver at least two more 25 basis point increases," Dallas Fed President Lorie Logan said on Friday. "A more gradual adjustment of policy can help households, businesses and market participants adapt to higher interest rates and reduce the risk of a sharp deterioration in economic activity."
Richmond Fed President Tom Barkin and St. Louis Fed President Alberto Musalem made similar remarks. The U.S. central bank's Federal Open Market Committee decided on Wednesday to hold the benchmark rate steady. Logan, who holds a rate-decision vote this year, said that "skipping a meeting does not change the endpoint of monetary policy."
Barkin said in a SiriusXM radio interview on Friday that "a gradual approach is a good approach." Musalem noted at an event in New York that "making gradual adjustments earlier generally causes less disruption than larger and more sudden moves later."
According to projections published after the September meeting, most Fed officials believe another rate hike may be necessary this year. Futures contracts show investors currently expect that to happen at the Fed's final rate meeting of the year on Dec. 8-9. Futures contracts also show the Fed may pause again in January and then consider a third hike in March.
Friday's remarks suggest that consensus within the Fed may be building around the need to tighten policy further in a gradual manner. Logan dissented in July against a decision to keep rates unchanged, but this week she supported the majority decision to stand pat. Barkin will regain an FOMC vote in 2027.
A GDP report released on Thursday showed the U.S. economy grew in the third quarter at its fastest pace in a year, driven by resilient consumer spending and business investment, with business investment supported by a boom in artificial intelligence-related spending. "If we do see demand continue to surge, that would be a situation you might want to lean against," Barkin said.
Logan said that after the two additional hikes she expects, the Fed should pause to assess economic and financial conditions and determine whether further increases are needed. "The ultimate goal should be for policy to be moderately restrictive so that we can sustainably achieve our two goals of full employment and price stability," she said.
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