Investing.com -- Federal Reserve officials emphasized the central bank’s message that interest rates will stay higher for longer than previously expected days after hitting pause on another rate increase.
That message, which sent Treasury yields to multiyear highs on Thursday, continues to sink in with investors. Treasury yields eased off those highs on Friday, helping to lift growth stocks, especially in the tech sector.
Fed Gov. Michelle Bowman told a gathering of community bankers in Vail, Colo., that she expects more interest rate increases will be needed to achieve the central bank’s goal of 2% annual inflation.
After raising the benchmark rate to above 5% in 11 rate moves since early 2022, the Fed has seen “considerable” progress toward that goal, she said in prepared remarks, supporting the decision on Wednesday to keep rates steady.
“However, inflation is still too high,” Bowman said. “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% goal in a timely way.”
The latest summary of economic projections by Fed officials showed the median expectation is that inflation will be above 2% until the end of 2025. Bowman said that suggests that “further policy tightening will be needed.”
Boston Fed President Susan Collins told the Maine Bankers Association meeting on Friday that the decision to pause this week “need not imply having reached the peak federal funds rate in this tightening cycle. Future decisions will depend on a holistic assessment of incoming data.”
Collins said she agreed with the policy guidance in the projections that indicate another rate increase this year and a more gradual moderation next year compared to expectations in June. “I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” Collins said.