Federal Reserve officials are growing skeptical about suspending rate hikes

It has been a busy week of public engagements for the Federal Reserve's top officials. One thing has become clear: There is an intensifying debate about whether to hike again or pause at the next meeting.

Some officials are concerned inflation isn't cooling fast enough, which could prompt an 11th consecutive rate hike when policymakers meet in June. Officials didn't express concerns over credit conditions deteriorating sharply and some said they remain open to pausing.

"So far, the data continue to support the committee's view that bringing inflation down will take some time," Fed Chair Jerome Powell said Friday in a moderated discussion with former central bank chair Ben Bernanke. However, he noted that there is lingering uncertainty on how much demand will be eroded from tighter credit conditions and the lagged effects of rising interest rates. Wall Street took that to mean a pause is on the table.

Earlier this month, Fed officials voted unanimously to raise the benchmark lending rate by a quarter point to a range of 5-5.25%, while signaling a possible pause ahead. The Fed launched its most aggressive rate-hiking campaign since the 1980s in March 2022 to battle inflation that has remained stubbornly high.

Although price hikes have cooled off in recent months, some officials have questioned this week whether the economy is headed toward 2% inflation.

"I'm keeping an open mind and a close watch on economic developments as we head toward the next meeting in mid-June," Federal Reserve Bank of Dallas President Lorie Logan said at a banking conference on Thursday in Texas. "I remain concerned about whether inflation is falling fast enough," she said. Logan is a voting member in the Fed committee that decides interest rates.

Pausing rate hikes as a response to recession scares is reminiscent of the "stop-and-go" strategy the Fed employed in the 1970s, when the central bank alternated between raising rates to fend off inflation and stopping them to shore up growth at the same time. The Fed didn't succeed at either when it did that, and inflation instead settled at elevated levels.