Summary: On Tuesday, a number of Federal Reserve officials engaged in a "debate" over whether to pause the interest rate hikes in June. Notable hawkish official Mester believes a rate hike is necessary, while four other officials emphasized the need to closely monitor the impact of policy tightening. As of the May meeting, senior Fed officials were in agreement about tightening monetary policy. However, disagreements are beginning to surface over whether the current rate is high enough to warrant a pause in the Fed's rate hikes.
The Fed raised interest rates by 25 basis points at its May meeting, accumulating a total hike of 500 basis points since last year. The next FOMC meeting is scheduled for June 13-14. At present, the market expects a high probability that the Fed will not raise rates in June, and there is nearly a 50% chance of a rate cut in September.
New York Fed President John Williams, the third-highest-ranking official at the Fed and a permanent voting member of the FOMC, stated that it is crucial to lower the inflation rate. He acknowledged the U.S. economy is still grappling with unacceptably high inflation but is starting to move in the right direction.
Dallas Fed President Logan, a voting member this year, conveyed a similar message to Williams, suggesting a slower pace may be needed when circumstances are uncertain. However, slowing down tightening does not mean a reduced commitment to achieving inflation targets.
For the second day in a row, Chicago Fed President Goolsbee, also a voting member this year, stated that inflation has not fallen as quickly as policymakers had hoped. He believes tightening credit conditions will help do some of the work of monetary policy. However, Goolsbee asserted that it is too early to talk about cutting rates, even discussing the next meeting's actions is premature.
Richmond Fed President Barkin emphasized his open-mindedness about the Fed's actions in June. But he also hopes to receive clear signals that high inflation has been defeated. If necessary, he would also support further rate hikes.
Cleveland Fed President Mester, a well-known hawkish official, gave the most hawkish statement among recent senior Fed officials. She explicitly stated that she believes more rate hikes should continue: "Based on the data I currently have, considering that inflation has been so stubborn, I don't believe the probability of the federal funds rate going up and down in the next step is equal."
