BUFFALO: Federal Reserve policymakers probably only need to deliver one more rate hike this year to get inflation back on track to the US central bank's 2 per cent goal, New York Fed President John Williams said on Tuesday (Sep 29), in what amounted to a pushback against mounting expectations for earlier policy tightening.

“With the policy action we took at our September meeting, there is no need for urgency,” Williams said at the University at Buffalo, in Buffalo, New York. Watching incoming data before deciding what's next “should provide greater clarity” on how the economy is performing, Williams said.

“If the economy evolves in a manner broadly consistent with my forecast, one further upward adjustment of the federal funds target range may be appropriate late this year to support a timelier return of inflation to target,” Williams said, while adding “that is just my forecast, and time — and the totality of the data — will tell”.

Financial markets took the unusually pointed messaging on board, with traders quickly paring what had been heavy bets for an October rate hike and now pricing for a single interest-rate hike this year, most likely at the Fed's mid-December meeting.

The Fed two weeks ago lifted its overnight target rate range by a quarter percentage point to 3.75-4.00 per cent, and the majority of Fed policymakers signalled another rate hike would likely be appropriate this year.

Fed Chairman Kevin Warsh, however, said nothing about his own rate-path expectations. In the intervening weeks, traders had added to bets that rising oil prices from the seven-month-old Middle East conflict would force the Fed to act again soon.

Hawkish Fed commentary also fueled that narrative, including from Fed Governor Michael Barr, who reiterated on Tuesday the case for "further policy adjustments" after high energy prices and strong AI-related demand knocked inflation off course from progress toward 2 per cent.

Williams signalled on Tuesday that traders might be getting ahead of themselves, even as he underscored the importance of containing inflation. The New York Fed chief typically works closely with the Fed chair to shape the central bank's monetary policy stance, so his words carry particular weight.

INFLATION ABOVE TARGET Economists polled by Reuters estimate that inflation by the Fed's targeted measure rose 3.7 per cent in the 12 months through August, nearly twice the Fed's goal.

“It is imperative that we return inflation to our 2 per cent target on a sustained basis,” Williams said. “To do so, we must make certain that adverse inflationary disturbances do not become entrenched, and that any second-round effects on inflation remain muted.”Williams said he sees inflation ending the year around 3.5 per cent as price pressures ease next year on the way toward getting inflation back to target in 2028.

To be sure, with the economy growing robustly and the job market holding in, price pressures are the main focus for monetary policy, Williams and other Fed policymakers said.

"The fact that we've now been five and a half years above the 2 per cent target with inflation — that's playing with fire. That's really playing with fire," Chicago Fed President Austan Goolsbee told an audience in central Illinois. "We've got to get some evidence that inflation is coming back down, that these things that are supposed to be temporary are, in fact, going away — otherwise, by definition, they're not temporary." At the same time, Goolsbee said he is among the more optimistic of Fed officials in that he expects the Fed to eventually be able to cut rates.

In his first four months as Fed chair, Warsh has given little sense of where he thinks interest rates ought to go, saying that he wants financial markets to stop paying so much attention to central banker pronouncements and more attention to what the economic data suggests the Fed may need to do to keep inflation in check.

In remarks delivered in London, St. Louis Fed President Alberto Musalem said it's important for central bankers to tell the public what they think.

"A central bank that does not explain how or why it makes policy decisions leaves the public to guess" about policy decisions, Musalem said, "which results in added premiums for uncertainty", and ultimately higher interest rates for businesses and households, and more risk of inflationary or even deflationary spirals where public behaviour becomes self-reinforcing.

"The communications choice before us is not between noisy overpromising and stoic silence. It is between leaving the public to guess how the central bank thinks and telling them," Musalem said.