① Federal Reserve Vice Chair Philip Jefferson stated on Thursday that if inflation does not cool down soon, a rate hike should be considered, but he also noted that current monetary policy is in a good place;
② Meanwhile, some Fed officials believe a rate hike is needed now, with Dallas Fed President Lorie Logan's remarks earlier on Thursday being the most notable;
③ This signals that intense debates are expected within the Fed at the policy meeting two weeks from now.
Cailian Press, July 17 (Editor Bian Chun) Federal Reserve Vice Chair Philip Jefferson said on Thursday that if inflation does not cool down soon, a rate hike should be considered, but he also noted that current monetary policy is in a good place.
In prepared remarks for an event in Stanford, California, on Thursday, Jefferson stated that the Fed's current interest rate setting should continue to support the labor market while bringing inflation down.
But he also said, "If actual inflation does not begin to moderate in the near term, I think it may be appropriate to reconsider our current policy stance to ensure we fulfill our commitment to achieving price stability."
Jefferson made clear that he does not belong to the "hawkish camp," describing current Fed policy as "in a good place"—a phrase commonly used by central bank officials to indicate they see no urgent need for policy changes.
However, in his remarks, concerns about inflation clearly outweighed considerations for the labor market, which is currently performing robustly.
Jefferson noted that conflicts in the Middle East and rising fuel prices may have a limited impact on demand but could exacerbate price pressures caused by last year's tariff increases.
"A series of shocks in quick succession has increased the risk that inflation becomes entrenched and inflation expectations become unanchored. Whether recent energy price increases will feed into longer-term inflation expectations and lead to persistent inflation is a key question," he said.
Jefferson also mentioned that he is closely monitoring the development of artificial intelligence (AI). If AI can rapidly boost productivity, it would help alleviate inflation. However, if stronger growth in consumption and investment demand outpaces productivity gains, it could intensify inflationary pressures.
Fed Decision to Spark Heated Debate
The Fed will hold its next policy meeting on July 28-29. As data released this week showed U.S. consumer price inflation cooled in June, traders have largely abandoned expectations for a rate hike this month.
Nevertheless, policymakers remain cautious about relying too heavily on a single month's data improvement, given that inflation trends have been moving in the wrong direction over the past few months.
Some Fed officials already believe a rate hike is needed now, with Dallas Fed President Lorie Logan's remarks earlier on Thursday being the most notable. Logan stated that while current inflation has improved, it remains insufficient, calling for a moderate rate hike to advance inflation-fighting goals. She is currently the most explicit Fed official in supporting a rate hike.
"At this point, I believe it is appropriate to moderately raise interest rates to better balance the prospects and risks of the FOMC achieving its dual mandate (maximum employment and price stability). Every month of inflation above the target level continues to add pressure to American households' budgets," Logan said.
Additionally, Kansas City Fed President Jeffrey Schmid warned on the same day that inflation is his biggest concern, as it may accelerate further in the coming months. He also cautioned against assuming that inflation is merely transitory.
Fed Governor Lisa Cook said on Wednesday that she is prepared to act if inflation does not start to slow soon, although she is willing to wait a bit longer to see how things develop.
This signals that intense debates are expected within the Fed at the policy meeting two weeks from now.
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