Fed governor says further interest rate hikes likely needed to fight inflation

Federal Reserve Gov. Michelle Bowman said Monday that additional interest rate hikes will likely be necessary in order to combat inflation, as rising energy prices pose a threat to recent progress.

“Inflation continues to be too high, and I expect it will likely be appropriate for the committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2 percent goal in a timely way,” Bowman said at a conference in Alberta, Canada.

Bowman serves as one of 12 voting members on the Federal Open Market Committee, which is responsible for setting interest rates. The panel, which voted last month to keep interest rates steady at a range of 5.25 to 5.5 percent, is set to meet to discuss potential rate hikes again in late October.

The Fed has repeatedly raised interest rates over the last year and a half, reaching a 22-year high as part of its efforts to rein in inflation. 

The panel’s preferred gauge of inflation, the core personal consumption expenditures (PCE) price index, has continued to show signs of improvement in recent months. Year-over-year inflation fell from 4.3 percent in July to 3.9 percent in August, according to data released by the Commerce Department on Friday.

However, headline PCE, which includes the more volatile prices of food and energy, saw a 3.5 percent annual increase in August, up from 3.4 percent in July, amid rising housing and energy prices.

“Most recently, the latest inflation reading based on the personal consumption expenditure index showed that overall inflation rose, responding in part to higher oil prices,” Bowman said Monday.

“I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months.”

The Fed indicated last month that it still expects another quarter-point hike this year, in line with previous projections. However, the panel also signaled that it may wait longer to cut rates than originally expected.

Following the Fed’s September decision to hold interest rates steady, Chairman Jerome Powell noted that rates could remain above 5 percent through the end of next year.

“We have the ability to be careful at this point and move carefully, and that’s what we’re planning to do,” Powell told reporters at the time.