“A baseline would be that probably inflation would be more persistent than what many on Wall Street expect and that’s going to be higher for longer,” he said. “That’s a risk that’s underpriced in the markets today.”
Fed officials hiked by 75 basis points at each of their last two meetings and have said the same again could be on the table when they gather next month, depending on the data. They get fresh reads on consumer prices and employment between now and then.
Philadelphia Fed President Patrick Harker, speaking in an interview with CNBC, also said rates need to be lifted into restrictive territory.
“There are glimmers of hope on inflation. I just emphasize glimmer -- our job is no way done. So we can take that as a positive, but we need to keep acting to raise rates to get inflation under control,” he said.
He too struck a measured tone, playing down suggestions that if the Fed only moved by a half point next month, that was somehow dovish.
“Since 1983, the Fed has raised rates 86 times -- 75 of those were under 50 basis points,” he said. “So whether it’s 50 or 75, I can’t say right now, but let’s not think that 50 is not a substantial move.”
Atlanta Fed President Raphael Bostic, speaking in a separate interview with the Wall Street Journal, said that he had not yet decided whether to back a 50 or 75 basis-point increase at the Sept. 20-21 gathering of the Federal Open Market Committee.
“At this point, I’d toss a coin between the two,” he told the Wall Street Journal. “We all, as policy makers, understand that inflation is a big problem and is a challenge that we’re going to do all that we can to handle.”
Pricing in interest-rate futures markets show investors view the odds of a 50 or 75 basis point increase as evenly balanced.
Bostic echoed George’s point that at the current 2.25% to 2.5% target range for the Fed’s benchmark policy rate was not yet in territory where it was slowing down economic activity.
He sees a neutral rate -- a theoretical level that neither speeds up nor brakes the economy -- close to 3%.
Fed officials in June estimated the long-run neutral rate to lie at 2.5%. But minutes of their meeting last month highlighted a debate about whether it could be higher in the short run.