U.S. Fed officials see inflation fight as broadly on track

The U.S. appears on track to hit its long-term target of two percent inflation despite a recent uptick, three Federal Reserve officials said Monday, with one indicating tentative support for another rate cut this month.

The U.S. central bank has been on a journey since the Covid-19 pandemic, hiking interest rates to a two-decade high and holding them there in order to tame a surge in inflation, before starting to dial back rates in recent months.

On paper, the U.S. economy now looks pretty healthy -- with robust economic growth, an unemployment rate still relatively close to historic lows, and inflation at 2.3 percent in October, according to the Fed's favored measure.

But as close as inflation now is to two percent, it has so far failed to hit that target, held high by several factors including the cost of housing, and actually ticked up slightly in October.

Despite the short-term uncertainty about inflation, the data still points to another rate cut as the best course of action this month, Fed governor Christopher Waller told a conference in Washington.

"At present I lean toward supporting a cut to the policy rate at our December meeting," he said, noting that many people still expected inflation to fall to the Fed's two percent target over the medium term.

"I believe the evidence is strong that policy continues to be significantly restrictive," he continued, adding that an additional rate cut would just mean that rates would be slightly less restrictive than they are now.

- 'Within striking distance' -

Speaking in the New York borough of Queens on Monday, New York Fed President John Williams said inflation was now "within striking distance" of two percent.

"Monetary policy remains in restrictive territory to support the sustainable return of inflation to our two percent goal," he continued, according to prepared remarks.

"I expect it will be appropriate to continue to move to a more neutral policy setting over time," added Williams, who along with Waller is a permanent voting member on the Fed's rate-setting committee.

Financial markets see a roughly 60 percent chance that the Fed will move ahead with an additional quarter-point interest rate cut later this month, and a probability of around 40 percent that it will pause, according to data from CME Group.

If the Fed does move ahead with a cut, its benchmark lending rate will fall to between 4.25 and 4.50 percent, a full percentage point below its level in September, when policymakers voted for the first rate reduction of this cycle.

In an essay published earlier Monday, Atlanta Fed President Raphael Bostic said the Fed's inflation fight remained on track, while expressing more caution about the best course of action.

"I believe inflation remains on a path, albeit a bumpy one, toward the Committee's objective of two percent," said Bostic, who is a voting member this year on the Fed's rate-setting committee.

"I do not view the recent bumpiness as a sign that progress toward price stability has completely stalled," he said.