Three Federal Reserve officials argued last Friday (October 30) for further interest rate increases to combat high inflation. This marks the first time Fed officials have publicly laid out their policy stance since the latest monetary policy meeting decided to hold rates steady.
Dallas Fed President Logan said the current level of price pressures and the length of time inflation has remained above the 2% target are both "unacceptable," adding that the Fed still needs to keep working at it.
In remarks prepared for an event at Davidson College, Logan said: "Given the current economic outlook, I still believe the Federal Open Market Committee needs to raise rates at least twice more, by 25 basis points each time."
She said that after completing those hikes, "I think we can pause, review the economic and financial situation, and then judge whether further action is needed."
Logan is a voting FOMC member this year, and she joined other policymakers at this week's meeting in supporting keeping the target rate range unchanged at 3.75%-4.00%. She explained that holding rates steady was due to heightened market volatility and a desire to give the public time to adjust to a higher borrowing cost environment.
Logan: At least two hikes of 25 basis points each, then a pause to assess
Logan's remarks were the most specific among the three officials. She laid out a quantified path of "at least two hikes of 25 basis points each" and made clear the condition for a pause — reviewing the economic and financial situation after completing those hikes. This statement was both a critique of the current policy stance and an actionable framework for future moves.
Her explanation for keeping rates unchanged this week — heightened market volatility and the need to let the public adapt to higher borrowing costs — indicates that the hold was a matter of pacing rather than a shift in direction.
Musalem: Monetary policy is still accommodative, better to act sooner than later
St. Louis Fed President Musalem also advocated for rate hikes in a separate speech, though he does not have voting rights this year.
In remarks prepared for an event at the Shadow Open Market Committee, Musalem said: "Monetary policy needs to be tightened further, and action should be taken as soon as possible."
He also said: "Gradual adjustments made earlier typically cause less disruption than larger and more sudden actions taken later."
He stated that inflation remains too high relative to the 2% target, and that without Fed action, inflation is unlikely to come down. He noted that the current monetary policy stance is not sufficient to push inflation lower.
Musalem said: "I believe monetary policy and financial conditions remain accommodative, though financial conditions have tightened somewhat recently."
His core logic is that policy remains too loose and inflation lacks self-sustaining downward momentum, so acting sooner is better than later, and gradual adjustments are preferable to being forced into large moves down the road.
Barkin: Direction is clear, the key is the pace
Richmond Fed President Barkin said in a radio interview: "Inflation is elevated, demand is solid, and the unemployment rate is relatively low. Therefore, the direction of the next rate move is fairly clear."
Barkin said: "However, the key is the pace of rate hikes... We have signaled gradual increases. Gradual hikes are reasonable when we are not clearly behind the curve, because we need time to observe and understand how the situation develops."
Compared with Logan and Musalem, Barkin's remarks focused more on pace than magnitude, but his judgment on direction was equally clear.
Background and market: Quiet period ends, December becomes the next observation window
The Fed's so-called "quiet period," which restricts officials from speaking publicly before FOMC meetings, has ended. Two Fed officials cast dissenting votes at this meeting, but unlike recent practice, Cleveland Fed President Hammack and Fed Governor Cook did not formally explain their reasons for voting in favor of rate hikes on Friday.
The Fed raised rates in September to push persistently high inflation back toward the 2% target. Officials have broadly hinted that the hiking cycle is not over, and traders and investors are viewing the December meeting as the next possible point for action.
After the FOMC meeting, Fed Chair Warsh was asked at a press conference why the Fed did not raise rates at this week's meeting if it believes inflation is too high.
Warsh said: "I am encouraged by the progress we have made in reducing inflation over a short period."
Warsh said: "But if the core of your question is that we have not yet met our target and have not yet achieved price stability, then you are right. However, we are working on it."
Warsh has been reluctant to provide guidance on the rate outlook, offering no indication of what the Fed might do at its December 8-9 policy meeting.
Futures market expectations for a December rate hike have cooled somewhat, but market participants still believe the Fed is more likely to raise short-term borrowing costs than to hold rates steady.
Notably, U.S. stocks fell sharply last Friday, as developments related to artificial intelligence weighed on investor sentiment, sending the Nasdaq index to a three-month low. If the slowdown in AI-related activity that the market fears materializes, the pressure on the Fed to raise rates could ease — officials have long pointed out that overheated tech investment has driven inflation higher, and a slowdown in that sector could help ease price pressures and reduce the need for further rate hikes.
Officials' remarks provide a floor of support, but not enough to drive a breakout
Logan laid out a quantified path of "at least two hikes of 25 basis points each," Musalem advocated acting "as soon as possible," and Barkin called the direction "fairly clear" — the consensus among the three is that inflation remains high and policy has not yet done enough, which provides fresh support for December rate hike expectations.
CME FedWatch shows the probability of a December rate hike at about 75%. Although it has pulled back from earlier highs, it remains at a relatively elevated level, meaning the interest rate differential advantage of dollar-denominated assets is difficult to reverse in the short term, forming a floor of support for the dollar index.
But that support is not yet enough to push the index into an upward breakout. During Asian trading hours on Monday (November 2), the dollar index remained range-bound, currently trading near 101.98, nearly flat on the day. There are three reasons for this.
First, officials' remarks amount to expectation management rather than policy action. Before the December 8-9 meeting, nonfarm payrolls and ISM data are still due, and the market needs data verification rather than pricing off speeches alone.
Second, futures market expectations for a December rate hike actually cooled somewhat after the officials' remarks, suggesting the market still has reservations about the certainty of the policy path.
Third, the retreat in safe-haven demand — as U.S.-Iran diplomatic contacts continue to advance — is weakening another source of support for the dollar.
With these two forces offsetting each other, the dollar index is more likely to remain range-bound between 101.50 and 102.20, with officials' remarks providing support at the lower end rather than upward momentum. A genuine directional breakout would require a clearer signal from the data flow before the December meeting, or a new variable in the geopolitical situation.
Conclusion
Three Fed officials collectively called for continued rate hikes last Friday, marking the first public positioning since this week's meeting held rates steady. Logan laid out a quantified path of "at least two hikes of 25 basis points each," Musalem advocated acting quickly and argued policy remains too accommodative, and Barkin emphasized that the direction is clear while the key lies in the gradual pace. Their consensus is that inflation is still too high and policy has not yet done enough; the disagreement is only over pace and magnitude.
Futures market expectations for a December rate hike have cooled somewhat but still lean toward a hike, and the December 8-9 meeting becomes the next observation window. If AI investment slows, it could indirectly reduce the need for rate hikes by easing price pressures, constituting a countervailing variable in the policy path.
(Dollar index daily chart, source: E-Huitong)
As of 10:56 Beijing time, the dollar index was at 101.98.
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