Two of the Federal Reserve’s most closely followed hawks repeated calls for more interest-rate increases and said signs that inflation is fading are evidence their aggressive actions are working.

Remarks by St. Louis Fed President James Bullard and Cleveland Fed boss Loretta Mester followed data earlier on Wednesday showing US retail sales fell last month by the most in a year while producer prices declined, extending a months-long pullback in inflationary pressures.

Still, the officials said that additional tightening was warranted to ensure that inflationary pressures recede.

“We’re almost into a zone that we could call restrictive - we’re not quite there yet,” Bullard said in an online Wall Street Journal interview, explaining that price pressures remain too high and officials must not “waver” on bringing them steadily down to the Fed’s 2% target.

“Policy has to stay on the tighter side during 2023” as the disinflationary process unfolds, he added, saying that he penciled in a forecast for a rate range of 5.25% to 5.5% by the end of this year in the Fed’s December dot plot of projections.

The disclosure shows that he was among a group of five of the Fed’s 19 policymakers who saw rates in that range at the end of this year, with two other officials projecting rates at 5.5% to 5.75%. The median rate projection was for 5% to 5.25%.

Policymakers lifted rates by a half-point last month to a target range of 4.25% to 4.5%, slowing the pace of rate increases after four straight 75 basis-point moves.

Fed officials are mulling a further moderation in the pace of rate hikes following a cooling in US inflation. Consumer prices rose 6.5% in the 12 months through December, marking the slowest inflation rate in more than a year, Labor Department data showed.

“We’re beginning to see the kind of actions that we need to see,” Mester said in an interview with The Associated Press published Wednesday. “Good signs that things are moving in the right direction.”

Mester didn’t disclose how big a rate increase she favored when officials meet Jan. 31-Feb. 1, but stressed that she wants rates to keep moving higher.

“We’re not at 5% yet, we’re not above 5%, which I think is going to be needed given where my projections are for the economy,” she said. “I just think we need to keep going, and we’ll discuss at the meeting how much to do”

The Fed's December Dot Plot
Bullard, who has been among the most hawkish of Fed officials, repeated that he favored “front-loading” of rate hikes and would like to move to the committee’s forecast above 5% as soon as possible.

Asked if he would be open to raising rates 50 basis points at the meeting in two weeks’ time, Bullard said, “Yes, why not go to where we are supposed to go, where we think the policy rate should be for the current situation?”

Recent data are giving mixed reports on the US economy. While retail sales declined, suggesting consumers are losing some of their resilience, the labor market remains strong with unemployment dropping to 3.5% last month. And growth was tracking about 4.1%, according to the Atlanta Fed’s tracker on Jan. 10.

“The prospects for a soft landing have improved markedly,” Bullard said. “The risk to the soft landing is that the inflation data doesn’t cooperate and goes in the other direction.”

This article was provided by Bloomberg News.