On Thursday, San Francisco Fed President Mary Daly said policy makers could keep interest rates at current levels if the labor market and inflation continue to cool or if financial conditions remain tight.
"If we continue to see cooling in the Labour market and inflation moving back towards our objective, we can keep rates on hold and let the effects of policy continue to work," Mr Daley said at an event organised by the Economic Club of New York.
"Even if we keep interest rates at the current level, policy is actually going to become more restrictive and inflation and inflation expectations will continue to fall as a result," she said. She added that "holding interest rates steady is therefore also a positive policy action."
Two weeks ago, the Fed decided to keep the target range for the federal funds rate at 5.25% to 5.5%. The bank has raised interest rates 11 times since March 2022 in an effort to curb high inflation, taking them from near zero to their highest level in 22 years.
A "dot plot" released at the same time showed that 12 of the 19 policymakers see one more quarter-point rate rise this year, while the other seven see the central bank rate at the end of the year in line with the current level, perhaps one of seven.
Mr. Daley added, "If financial conditions, which have tightened dramatically over the past 90 days, are similarly tight, we will have less need to take further action." Interest rates on US government bonds have risen markedly in recent days, with the yield on the 30-year bond briefly rising above 4.85% this week, its highest level since 2007.
Mr Daly believes the tightening bond market is already the equivalent of a rate rise, "so there is no need for further tightening". And in her view, the bond market tightening is not disorderly, but "financial markets are finding their footing and the right price."
Daly said investors appear to be absorbing the uncertainty in the data, which is in line with policymakers' view that "when Treasury yields rise, we see the probability of a rate hike in November decrease." It shows that the market is trying to understand the way we see things, and they do take that into account."
It should be noted that Daly is not a voting member of the Federal Open Market Committee (FOMC) this year, but will become a rotating voting committee next year. In September, Daly said she supported achieving the 2 percent inflation target "as gently as possible."
Still, she added today that if the trend of improving data stalls, "we could also respond by raising interest rates further until we are confident that monetary policy is restrictive enough to do the job."