Three Federal Reserve officials warn: current interest rates may be too accommodative, inflationary pressures still need to be addressed

Hawkish voices within the Federal Reserve continue to intensify. Three Fed officials have warned that the current interest rate level has not imposed a substantial constraint on the economy. Against the backdrop of inflation remaining above the 2% target, policymakers should act promptly.

Kansas City Fed President Jeff Schmid said on Thursday that the current short-term interest rate level "may be in an accommodative range" and stated bluntly, "We still have work to do." Schmid indicated that he tends to side with colleagues who voted for a rate hike at the last meeting, saying, "I would probably put myself in that camp."

Cleveland Fed President Beth Hammack reiterated her hawkish stance the same day. Hammack was one of the three officials who voted against holding rates steady at last month's policy meeting. She stated that current interest rate levels are not restrictive enough to bring down inflation on their own, and policymakers should "act now."

Boston Fed President Susan Collins stated: “If I do not see ongoing evidence of disinflation as I expect, I am willing to support a rate hike.”

The statements from the three officials came just ahead of the Jackson Hole annual meeting. The market is paying close attention to Fed Chair Warsh’s keynote speech to be delivered on Friday for further policy guidance.

Schmid also responded to concerns about market turbulence caused by Warsh’s July press conference and questions over the Fed’s credibility, saying, "Personally, I do not share that view."

The next Federal Reserve policy meeting is scheduled for September 15-16, followed by another in late October—just before the midterm elections.

Schmid made it clear that election-related factors will not influence the Fed’s decisions: "When we enter that room, we can frankly express our judgment about the economy; elections are simply not a consideration, at least not for me."

Hammack elaborated on her policy rationale in an interview later on Thursday, emphasizing that the longer inflation overshoots the target, the harder it will be to bring it back down. "We need to apply some policy restraint to help inflation return to target," she said.

Regarding the inflation outlook, Hammack’s forecast is relatively cautious: around 3% by the end of this year and "at best a touch above 2%" next year, not expecting "significant progress."

On the labor market, Hammack said that the US labor market is broadly balanced and also stable.

In an article this week, Collins noted that if there is no evidence of sustained improvement in inflation, the Federal Reserve tightening policy "soon" would be appropriate. When asked on Thursday if this could mean action in the next one or two meetings, she replied: "It’s possible, yes."

Collins does not have a vote on rate decisions this year but participates in policy discussions of the Federal Reserve.

The Federal Reserve’s preferred inflation gauge—the Personal Consumption Expenditures (PCE) Price Index—rose 3.7% year-on-year as of July, data released on Wednesday showed, continuing the trend of inflation above target.

At last month's policy meeting, the Federal Open Market Committee (FOMC) voted to keep the benchmark federal funds rate at a range of 3.5% to 3.75%, but three officials voted against and clearly supported a rate hike.

Meeting minutes show that, in addition to non-voting officials, several members supported a rate hike; multiple others indicated that if inflation fails to decline, further tightening would be necessary.

There are currently differing views in the economics community regarding whether the Fed needs to raise rates in the coming months, but the collective statements from hawkish officials have undoubtedly added pressure to the upcoming meeting’s discussion.