Kathleen O'Neill Paese, interim governor of the Federal Reserve Bank of St. Louis, hinted on Thursday that if inflation (cooling) slows down, policymakers should be prepared for further interest rate hikes.
Paese stated that she supports the decision of the Federal Reserve to suspend interest rate hikes in two consecutive meetings, but also stated that if necessary, officials can choose to further raise interest rates to cool inflation, which is important.
She said, "Given that the current policies have exerted mild downward pressure on inflation and given the balance of risks, we have the ability to wait for further data before drawing the conclusion that further tightening policies is appropriate
However, if the process of achieving the 2% inflation target stagnates, I believe the committee should take swift action to ensure that high inflation is not deeply ingrained, "she added, making this the most substantive policy statement since taking office as interim chairman this summer.
After keeping the benchmark interest rate unchanged in the first two policy meetings, Federal Reserve officials are trying to decide whether to continue raising interest rates. At present, the policy interest rate continues to remain between 5.25% and 5.5%, the highest level in 22 years.
The CME Federal Reserve observation tool shows that most investors no longer expect further interest rate hikes.
Paese stated that she supports the recent suspension as financial and credit conditions have tightened over the past two to three months, which could help reduce inflation. But she said that if officials do not see sustained progress in inflation, further interest rate hikes may be needed.
It will be very important to closely monitor how various aspects of the financial situation will evolve in the coming weeks, "she said.
In the Q&A session after the speech, Paese emphasized that Federal Reserve officials remain committed to the central bank's 2% inflation target and stated that she expects interest rates to remain high in order to achieve this goal.
We expect high interest rates to maintain for some time. It will take some time to reduce inflation, "she added.
Paese served as interim chairman after former Governor Brad of the St. Louis Federal Reserve Bank resigned in August, and this year she has no voting rights in monetary policy decisions. Banks in the region are still searching for Brad's successor.