"It will likely be appropriate to raise rates further and hold them at a restrictive level for some time," Fed Governor Michelle Bowman said in remarks prepared for delivery at a banking conference. "Inflation remains too high."
US headline inflation, as measured by the Consumer Price Index, or CPI, hit 40-year highs of more than 9% in June 2022 before falling to as low as 3.0% by June this year. Since then, it has been on the rise, rising to 3.7% in August, as high global oil prices bumped up fuel costs at home.
The Fed left rates unchanged when it last met on September 20, after adding a quarter point in July. It has hiked rates 11 times since March 2022, adding 5.25 percentage points to a prior base that peaked at just 0.25%.
Bowman said she expects "progress to be slow on inflation given the current level of monetary policy restraint" - a reference to the 11 rate hikes the central bank has already instituted in less than two years.
"There is a risk that high energy prices could reverse some of the recent progress on lowering inflation," she added.
Michael Barr, the Fed’s vice chair for supervision, concurred with Bowman that the central bank will likely "need to keep rates up for some time."
But Barr also said higher-for-longer did not mean higher-forever.
"In my view, the most important question at this point is not whether an additional rate increase is needed this year or not, but rather how long we will need to hold rates at a sufficiently restrictive level to achieve our goals," Barr said in comments prepared for delivery to the Forecasters Club of New York. "I expect it will take some time."
Fed Chairman Jerome Powell, meanwhile, told another event that the US economy was "still working through the impact of the pandemic," and needs more time to stabilize.
Oil Down as Q4 Starts Amid New Inflation, Global Economy Worries
Crude prices fell 2% on Monday as global markets began trading for the fourth quarter amid renewed concerns about inflation and a worldwide slowdown.
“The damage that can be done to the economy by high oil prices is very real and it’s completely delusional to think this is acceptable for the bulk of the world which does not produce oil but instead consumes it,” John Kilduff, partner at New York energy hedge fund Again Capital, said in a text shared with Sputnik.
Both New York-traded West Texas Intermediate (WTI) crude and London’s Brent oil fell about 2% each, extending losses from Friday. The two crude benchmarks had risen nearly 30% in the third quarter, threatening a new round of chaos to economies in non-oil producing countries.
While September manufacturing data, via the Purchasing Managers Index, improved in both the United States and Europe, economists saw that as more of a work-off on inventories of raw materials in hold. The concern is how the global economy would fare for the rest of 2023 if energy prices continue rising without control, adding an onerous burden to overheads.
The dollar’s surge to a new 10-month high added to the weight of commodities denominated in the US currency.
On the brighter side of oil, OPEC+, the 23-nation alliance of oil producers, is to meet on Wednesday. The proponents of higher crude prices are counting on OPEC+ — which groups the 13-member Saudi-led Organization of the Petroleum Exporting Countries with 10 independent oil producers steered by Russia — to reignite the upward momentum held by the market over the past four months.