Fed’s Jefferson urges patience on rates; Kashkari sees more hikes ahead

Federal Reserve Vice Chair Philip Jefferson emphasized the need for patience regarding interest rate adjustments in the United States, stating that any future policy changes should be based on thorough examination of data trends, evolving outlook, and risk balance. He stated that financial markets are currently reassessing the outlook amid rising bond yields, and his colleagues and he would need more time to determine the next move.

The Federal Reserve increased its benchmark rate by a quarter-point to a range of 3.75%-4.00% during its September 15-16 meeting, with projections indicating one more increase before the end of 2026. New York Fed President John Williams similarly called for additional data assessment before deciding on further rate hikes, but still expected another increase before the end of the year.

Jefferson anticipates that inflation will remain elevated in the near term before declining toward the Fed's 2% goal as energy and other price shocks fade, but views risks to his inflation forecast as leaning towards the upside due to recent geopolitical developments and stronger-than-anticipated aggregate demand. Fed's Minneapolis President Neel Kashkari echoed the call for more rate hikes to restrain the economy through 2027, though he was uncertain about the timing of the next move, specifically at the October 27-28 meeting.

Kashkari, who voted for the last month's rate increase, projected one more quarter-point hike this year and another in 2027. While the economy shows continued resilience with job additions and an ongoing six-and-a-half-year expansion, Kashkari noted that inflation is still too elevated, and if the economy proves resilient and inflation remains sticky, policy might need to go higher than currently anticipated.

Despite the recent sharp rise in long-term borrowing costs due to the latest rate increase, Kashkari believes monetary policy is not yet sufficiently restrictive, and the banking sector warrants close monitoring due to the rapid shift in borrowing costs.