The Federal Reserve hasn’t yet raised interest rates to levels that are weighing on the economy and may have to take them above 4% for a time, Kansas City Fed President Esther George said.
“It’s very important that we are clear in our communication about the destination we are headed,” George said in an interview with Bloomberg Television at Jackson Hole, Wyo., where the Kansas City Fed hosts the central bank’s annual policy retreat.
“We have to get interest rates higher to slow down demand and bring inflation back to our [2%] target,” said George, who votes on monetary policy this year.
Asked how high the Fed should raise rates, George said there was “more room to go” and pushed back against bets in financial markets that the central bank would begin cutting rates next year.
“I think we will have to hold — it could be over 4%. I don’t think that’s out of the question,” she said. “You won’t know that, I think, until you begin to watch the data signs.” Fed Chairman Jerome Powell, headlining the prestigious symposium with a speech this morning, is expected to restate his resolve to keep tightening monetary policy to fight inflation.
The U.S. central bank is raising interest rates rapidly to curb the hottest price pressures in 40 years.
Fed officials increased its benchmark interest rate by 75 basis points at each of their past two meetings and have said the same again could be on the table when they meet next month, depending on the data. They will get fresh reads on consumer prices and employment before the meeting.
George said she saw some signs of demand cooling, but “certainly you’re not seeing it fully in the inflation data yet. It’s still very broad-based, and I think tells us there is more work to do.” U.S. consumer prices rose 8.5% in the 12 months through July. The Fed aims at a different gauge, called the personal consumption expenditures price index, which rose 6.8% in the year through June.
“We want financial conditions to tighten along with the direction we are moving around policy,” George said.
In a separate interview with the Wall Street Journal, Atlanta Fed President Raphael Bostic said that he had not yet decided whether to back a 50 or 75 basis-point increase at the Sept. 20-21 meeting of the policy-setting Federal Open Market Committee.
“At this point, I’d toss a coin between the two,” Bostic said. “We all, as policymakers, understand that inflation is a big problem and is a challenge that we’re going to do all that we can to handle.”