Fed officials backed another rate hike as they monitored the impact of bank stress on the economy, while new emergency lending data showed continued financial focus.
Cleveland Fed President Loretta Mester, usually one of the more hawkish policymakers, said she favours rates above 5% because inflation remains too high.
But she tempered the message, arguing that caution was needed as tighter credit conditions could dampen hiring and spending.
“We are closer to the end of the tightening journey than the beginning,” she said on Thursday. “How much further tightening is required will depend on economic and financial developments and progress on our monetary policy objectives.”
Data released after her speech showed banks increased emergency borrowing from the Fed for the first time in five weeks.
Policymakers raised borrowing costs by 25 basis points last month, raising the benchmark interest rate target to 4.75% to 5% from near zero 12 months ago.
According to the median of their forecasts, they also see another rate hike this year, to 5.1% – a move investors are betting they will take at their upcoming May 2-3 meeting.
Some Fed officials have said they want to pause at that point, although investors expect a rate cut by the end of the year.
Atlanta Fed President Raphael Bostic, one of the policymakers, reiterated that message.
Asked whether he still supported a “set and forget” approach to rate hikes, he said, “That’s my view,” noting that policy works with a lag.
“Once we reach that point, we’re firmly in a restrictive space. Then I think it’s time for restrictive action. It’s going to take some time,” he said.
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