Two Fed Officials Say Rates Aren’t Restraining Economy

Two Federal Reserve officials said the central bank’s interest-rate setting is not restraining the US economy at a time when inflation continues to run above its 2% target, urging their peers to act soon to cool price pressures.

“For me I think it might be accommodative on the short end,” Kansas City Fed President Jeff Schmid told Bloomberg Television in an interview in Jackson Hole, Wyoming. “So we’ve got work to do.”

Economists are divided over whether the Fed will need to raise interest rates over coming months in a bid to tame inflation. The latest price data, released Wednesday, showed the Fed’s preferred gauge of inflation rose 3.7% in the year through July.

At their July meeting, policymakers voted to hold the benchmark federal funds rate in a range of 3.5% to 3.75%. Three officials dissented in favor of a rate hike.

Minutes of the gathering showed several officials, including non-voters, favored an interest-rate increase, and many others indicated that policy tightening would be necessary if inflation didn’t decline.

“There were some of my colleagues who dissented at the last meeting, so I would probably put myself in that camp,” Schmid said.

Schmid spoke on the eve of the Fed’s flagship annual conference in Grand Teton National Park. Investors will be watching closely when Fed Chairman Kevin Warsh delivers a keynote speech on Friday.

Cleveland Fed President Beth Hammack, one of the officials who dissented against last month’s rate decision, reiterated Thursday that policymakers should act now to contain inflation because rates are not slowing the economy enough for price pressures to cool on their own.

“I think it’s appropriate for us to put some restraint there to help bring inflation back down to target,” Hammack said in an interview with CNBC. “The longer inflation stays above our objective, the harder it will be for us to bring it back down.”

Speaking later Thursday on Fox Business, Hammack said she sees inflation ending this year at around 3% and she doesn’t expect “significant progress” next year. “I think we’ll get to maybe mid-2s at best,” she said. “So again, I have to think about how long is that inflation staying up there? How persistent is it?”

Policymakers next meet Sept. 15-16, then in late October just before the mid-term elections. Schmid said he didn’t believe the election would affect the Fed’s decision making.

“We get in that room, we are able to speak our truth about what we think the economy is doing, and I just don’t think it enters into the equation,” he said of the election. “It certainly doesn’t enter into my equation.”

The Kansas City Fed chief also pushed back against views that the central bank’s credibility has taken a hit after Chairman Kevin Warsh’s shaky press conference in July contributed to a bond market rebuke.

“Well for me I just don’t see it,” Schmid said.

This article was provided by Bloomberg News.