Fed officials back slower pace of rate hikes

The Federal Reserve has raised the issue of holding back aggressive interest rate hikes after receiving long-awaited news about the rate of inflation.

While at the bank's conference in Houston, Dallas Fed President Lorie Logan said the idea of slowing the pace of rate hikes may soon be worthwhile because that way they could better assess how financial and economic conditions were developing. Logan also believes that a slower pace should not reflect softer policy.

The FRB president also explained that the consumer price index data was a welcome relief for them, but despite that, the bank still has a long way to go. Moreover, inflation is well above the Fed's 2% target, but as aggregate demand continues to outpace supply, inflation has repeatedly been higher than forecasts.

News of a more optimistic than expected consumer price index report led to a sharp drop in bond yields. Investors responded by confirming their expectations of a slowdown in the Fed's next rate hike for December, where an interest rate cut is expected to be about 50 basis points. However, Bloomberg reports that rates will peak at 4.8% next year 

San Francisco Fed President Mary Daly said that the optimal level for the Fed to raise rates is still unclear - maybe it will be above the 4.5% mark. But Daley would like to proceed more cautiously to meet that target.

Kansas City Fed Chairwoman Esther George said she sees several advantages to the approach of raising the discount rate. However, the head advised a more measured approach to the next steps.

While at the same conference where Logan spoke, the Kansas City Fed president explained that a more measured approach to raising rates could be very helpful given the continued focus of policymakers on market reaction to higher rates. For example, policy actions by the Federal Open Market Committee have already led to a sharp tightening of financial conditions.