Three top officials of the Federal Reserve, known as the "hawkish trio," have stated that inflation is not yet under control and that interest rates need to be raised further this year.

The surprising non-farm payroll data did not dampen investors' fears of interest rate hikes. The higher-than-expected wage growth has solidified investors' expectations of a rate hike by the Federal Reserve in July. Several Fed officials have voiced their opinions, further fueling expectations of a rate hike.

On Monday, July 10, local time, multiple Fed officials reiterated that continuing to raise interest rates is the mainstream view. They emphasized the need to raise rates in order to bring inflation down to the 2% target level, but also hinted that rates are nearing their peak.

Michael Barr, Vice Chairman of the Fed responsible for supervision, stated that the Fed's monetary policy has made significant progress over the past year and is close to its target, but there is still work to be done.

Mary Daly, President of the Federal Reserve Bank of San Francisco, believes that the current inflation rate in the United States is still too high and that two more rate hikes are needed:

It seems that two more rate hikes are needed to curb inflation. The Fed should base its policy decisions on economic data. The greater risk the Fed faces now is not raising rates enough, rather than raising rates excessively, although the gap between the two is rapidly narrowing.

Daly mentioned that signs of economic slowdown are already visible and that supply and demand are balancing better.

Loretta Mester, President of the Federal Reserve Bank of Cleveland, stated at an event at the University of California, San Diego on Monday that in order to ensure inflation returns to 2%, rates need to be further raised and maintained for a period of time:

The U.S. economy has shown more resilience than expected earlier this year, and inflation remains stubbornly high, especially core inflation.

In order to ensure that inflation can sustainably and promptly return to 2%, my view is that rates need to be further raised from their current level and then maintained at that level for a period of time.

However, Raphael Bostic, President of the Federal Reserve Bank of Atlanta, holds a different view. Due to signs of economic slowdown in the United States, the Fed can afford to be patient.

Bostic stated in a speech in Atlanta on Monday that the Fed can afford to be patient as the current rates are clearly at a restrictive level:

We continue to see signs of economic slowdown, which tells me that the restrictive measures are working.

The U.S. economy is showing "incredible" resilience, but the inflation rate is still too high. The Fed firmly believes that it can contain inflation and ensure that the inflation rate falls back to the target level of 2%.

U.S. inflation in May hit a two-year low, signaling the end of the inflation cycle, but core inflation remains stubborn. The market is closely watching the release of the U.S. June CPI on Wednesday, which is expected to show a 5% increase in core inflation compared to the previous year, still far above the Fed's 2% target.

Will the Fed raise rates twice more this year?

After starting the rate hike campaign to combat inflation 15 months ago, the Fed paused for the first time at its June policy meeting. However, the market widely expects the Fed to resume rate hikes at its meeting on July 25-26. According to the observation tool of the Chicago Mercantile Exchange (CME) on the Federal Reserve, the fund market currently believes that the probability of a rate hike in July is 94%, compared to 93% last Friday.

The non-farm payroll report released on July 7th showed that despite the slowdown in job growth last month, wage growth remains strong, indicating that the labor market is still robust enough to warrant a rate hike by the Federal Reserve:

The unemployment rate dropped 0.1 percentage point from the previous month to 3.6%, in line with expectations and hovering near multi-decade lows, suggesting that labor supply remains tight. Average hourly earnings continued the similar upward trend seen in April and May, with a year-on-year growth of 4.4% that exceeded expectations. The slight increase in average weekly hours represents an overall rise in workers' income, indicating that the labor market is strong enough to exert upward pressure on inflation and warrant a rate hike by the Federal Reserve.

Economists generally believe that the annual growth rate of non-farm hourly wages in the United States must fall to around 3.5% in order to meet the Federal Reserve's target of bringing inflation back to 2%. However, wage growth has already outpaced prices, and as more and more workers demand significant pay raises, the risk of a "wage-inflation spiral" is intensifying.

The probability of an additional rate hike after July and before the end of the year is hovering around 30%.