Fed officials are already saying they’ll need to get back to hiking rates

Alberto Musalem and Lorie Logan both argued that the Federal Reserve has not finished raising interest rates. Their concern is inflation, which Musalem called too high and said could remain above the Fed’s 2% goal without further policy adjustment. Their comments offered an early signal about what some officials may support after the Fed left rates unchanged.

Musalem said “additional firming” would be necessary soon. He favored smaller, earlier moves because they may limit damage to employment and economic growth. Logan was more specific. She said the Federal Open Market Committee needed at least two additional increases of 25 basis points each.

Logan also said the Fed need not raise rates at every meeting. After those two predicted increases, she would pause and review economic and financial developments. Investors consequently saw a stronger chance of a December hike, with futures pricing roughly a 76% probability.

A Federal Reserve interest-rate hike is an increase in the target range for the federal funds rate. In standard central-bank practice, this is the short-term rate the Fed directly guides and controls through its monetary-policy decisions. It matters because that rate influences other market interest rates, including rates on loans, credit, and some savings products.

For example, when the Fed raises its target by 25 basis points, banks and financial markets adjust to the higher overnight funding cost. Borrowing for households and businesses can become more expensive. The higher cost can discourage some spending and investment, reducing demand for goods, services, and labor.

The source refers to Fed funds futures and describes the FOMC as the group setting interest rates. It does not explain the mechanics of direct control, so the federal-funds-rate explanation comes from established monetary-policy knowledge. The article’s main point is that officials may raise rates again to restrain inflation.

Each 25-basis-point increase equals a quarter of one percentage point. Logan said the FOMC needed at least two such increases, although she did not say they had to happen at consecutive meetings. Her forecast describes the size of the expected moves, not a guarantee that the committee will follow that exact schedule.

The article gives a specific market signal for December. Fed funds futures traders were pricing in a roughly 76% likelihood that the committee would raise rates by a quarter percentage point at that gathering. Futures prices reflect investor expectations, so they show how markets viewed the possibility rather than what the Fed had already decided.

Logan said that after the two increases, the Fed should pause and examine economic and financial developments. The December meeting therefore mattered as the likely next opportunity for a hike, but the article also emphasizes that officials can skip a meeting without changing their eventual policy destination.

The Federal Reserve’s long-term inflation target is 2%. Inflation above that level means prices are rising faster than officials consider consistent with price stability. The article reports that the personal consumption expenditures price index showed annual inflation above 3%, so Musalem judged inflation to be too high.

The concern is not only today’s reading. Musalem said inflation could remain above 2% into the future unless monetary policy changes. Fed officials are also watching consumer and investor expectations. If people expect high inflation to continue, those expectations can become broader and make the problem harder to reverse.

That gap helps explain the case for more rate increases. Musalem argued that restoring price stability would ultimately help employment and growth, even though reducing inflation can create short-run economic costs. Two FOMC voters, Lisa Cook and Beth Hammack, also wanted a quarter-point increase when the committee kept rates unchanged.

A further rate increase would tighten financial conditions. Borrowers could face higher costs, and households or businesses might delay spending and investment. That weaker demand could slow economic growth and hiring. The article notes that financial conditions were still accommodative, while Musalem described the labor market as stable and balanced.

The intended mechanism is a trade-off. Higher rates reduce economic pressure, which can ease price increases over time. But the adjustment can also create short-run costs. Musalem said moving earlier in smaller steps had a better chance of succeeding without adverse effects on the labor market or economic growth.

The likely result depends on how inflation and demand respond. The Fed’s goal would be to reduce inflation before it becomes entrenched, while avoiding unnecessary damage to employment. Logan said that after two increases, officials should pause and examine economic and financial developments before deciding what further action might be appropriate.

The Fed may skip a meeting when it wants more time to assess inflation, growth, employment, and financial conditions. A pause can prevent policymakers from reacting mechanically at every meeting. It also lets earlier rate increases work through the economy before officials choose another move.

Logan gave this reasoning directly. She said skipping a meeting does not change the monetary-policy destination. By making the eventual destination clear, she argued, the FOMC can help the economy adapt and obtain the benefits of a pause. In her view, the Fed could raise rates later rather than increase them at every gathering.

Logan still expected at least two more quarter-point increases. Afterward, she said it would make sense to pause and examine developments before deciding on additional action. Thus, a skipped meeting would represent timing and evaluation, not necessarily a change in the Fed’s overall inflation-fighting plan.

Higher interest rates reduce inflation by slowing demand. When borrowing becomes more expensive, households may spend less and businesses may postpone investment. That weaker demand can reduce pressure on prices. Higher rates can also influence inflation expectations, which the Fed watches closely to ensure they do not rise too far above 2%.

The timing matters. Musalem said earlier, incremental adjustments are usually less disruptive than larger, abrupt actions later. His reasoning is that small moves can begin reducing inflation before high prices become entrenched and widely expected to persist. That may limit the eventual need for a much harsher slowdown.

The article presents this as a balancing act. Inflation was above 3%, but the economy was resilient, with GDP growth of 3.4% and unemployment at 4.2%. Musalem argued that acting before inflation becomes entrenched could reduce longer-term costs, while protecting employment and economic growth better than delayed action.