Officials at the US Federal Reserve have voiced support for further interest rate increases to bring inflation back to the 2% target. Philadelphia Fed President Anna Paulson said that if conditions unfold as expected, a little more monetary tightening may be appropriate, noting that although price pressures eased somewhat over the past summer, core inflation remains around 2.5-3%, well above the Fed's 2% goal, with almost no sign that the gap is narrowing. Fed Board Governor Michael Barr said he expects the Fed will need to keep raising rates to control inflation, pointing out that risks to reaching the inflation target have risen while risks to the labor market have diminished, and describing the Fed's 0.25% rate hike last week as an important move for monetary policy. The remarks came as S&P Global reported that the preliminary US composite PMI for manufacturing and services rose to 58.4 in September, the highest in 62 months, from 56.0 in August. At the same time, price pressures increased sharply, reaching their highest level since October 2022.
Fed officials back further rate hikes to curb above-target core inflation, implying a higher policy rate.
Expectations of further Fed tightening and hot PMI price pressures push the 10Y Treasury yield higher.
