Fed Officials Look at Higher Peak for Rates as Inflation Endures

Federal Reserve policymakers are suggesting that they’re prepared to raise interest rates higher than previously planned, though not necessarily faster, with elevated inflation proving more persistent in the latest data.

Kansas City Fed President Esther George said Friday the central bank should raise interest rates to a restrictive level to curb inflation, but take care not to make too much haste, which could “disrupt financial markets and the economy in a way that ultimately could be self-defeating.”

George, in a virtual speech to S&P Global Ratings, also said the terminal rate may need to be higher to cool prices.

Noting that US households are still sitting on savings that could help them keep spending, she said that could suggest the need to “keep at this” for longer.

“You may see the terminal fed funds rate higher and have to stay there longer,” she said. “But I’m more cautious maybe than most about how quickly we do that.”

The Fed is on track for a fourth consecutive 75 basis-point hike in interest rates in early November as central bankers seek to cool the hottest inflation in nearly four decades. Investors also bet that another increase of that size is likely in December, with markets for the first time seeing rates approaching 5% next year, after disappointing inflation news.