By Howard Schneider and Ann Saphir
WASHINGTON (Reuters) -U.S. Federal Reserve officials wrestled Thursday with whether recent data showing inflation, jobs and spending all hotter than expected was a "blip" or a sign that even higher interest rates could be required to slow price rises.
The separate comments from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic posed a question central to the next phase of the Fed's battle to lower inflation: Is monetary policy again slipping behind the curve of a surprisingly strong economy that needs even tighter credit conditions, or is slower growth and lower inflation already in train?
So far, even hawkish voices like Waller say the jury is out, with jobs and inflation data released between now and the Fed's upcoming March 21-22 meeting likely key to whether he and perhaps other policymakers tilt towards higher interest rates.
"Last month we received a barrage of data that has challenged my view ... that the Federal Open Market Committee was making progress in moderating economic activity and reducing inflation," Waller said in comments Thursday to the Mid-size Bank Coalition of America, an organization of around 100 financial institutions with assets between $10 billion and $100 billion.
"It could be that progress has stalled, or it is possible that the numbers released last month were a blip," he said.
If upcoming data shows the economy moderating and inflation slowing, Waller said he would "endorse" the target federal funds rate rising to roughly the same spot policymakers projected as of December, when 13 of 19 officials saw rates coming to rest somewhere from 5.1% to 5.4%.
The current policy rate is set in a range between 4.5% and 4.75%.
"On the other hand if those data reports continue to come in too hot, the policy target range will have to be raised this year even more to ensure that we do not lose the momentum that was in place," Waller said.
Bostic also said he was ready to raise rates higher if upcoming data did not show inflation "clearly" heading back towards the central bank's 2% target from its January level of about 5.4%.
But he also felt the impact of Fed rate increases so far may only be getting started, a reason to be careful in deciding on further rate hikes lest the central bank overstep.
"Slow and steady is going to be the appropriate course of action," Bostic said in comments to reporters, with perhaps only two more quarter point increases needed before the Fed can pause.
Fed rate increases "should bite through the spring ... Going at a measured pace reduces the likelihood we overshoot" and damage the economy.