By Howard Schneider and Ann Saphir

WASHINGTON (Reuters) -U.S. Federal Reserve officials warned on Friday of further rate hikes even after voting to hold the benchmark federal funds rate steady at a meeting this week, with three policymakers saying they remain uncertain the inflation battle is finished.

Their comments were tempered by words like “patience,” and an acknowledgement that price increases have been slowing.

But in the first public comments since the central bank this week agreed to hold its benchmark rate steady in a range of from 5.25% to 5.50%, the emphasis was on the possibility that rates may still rise, and on the fact that monetary policy will likely remain tight longer than previously expected.

“Inflation is still too high, and I expect it will likely be appropriate for the (Federal Open Market) Committee to raise rates further and hold them at a restrictive level for some time to return inflation to our 2% goal in a timely way,” Fed Governor Michelle Bowman said in prepared remarks for an Independent Community Bankers of Colorado event.

“Progress on inflation is likely to be slow given the current level of monetary policy restraint,” she said, noting that in policymaker projections issued by the Fed earlier this week inflation remains above the 2% target “at least until the end of 2025.”

A potential further rise in energy prices, she noted, was a particular risk worth monitoring.

In separate remarks to the Maine Bankers Association, Boston Fed President Susan Collins said a further tightening of monetary policy “is certainly not off the table,” though she also counseled “patience” as the Fed tries to get the right signal from sometimes noisy inflation data.

“It is too soon to be confident that inflation is on a sustainable trajectory back to the 2% target,” Collins said, with job growth still “above trend,” and elevated inflation in aspects of the service sector still a concern.

“I expect rates may have to stay higher, and for longer, than previous projections had suggested,” said Collins.

San Francisco Fed President Mary Daly, considered among the more dovish Fed officials, said she still needed more data to determine whether interest rates should rise again, though she called it “prudent” for the Fed to be patient in future rate decisions.

“The thing that would be a problem is if we decided that we wanted to call it done, we’d say we’re done, we say definitely one more, when we actually don’t know,” she said in an event held in coordination with Greater Phoenix Leadership.

Minneapolis Fed President Neel Kashkari, a voter on rate policy this year, did not talk about his current monetary policy views during an event at the Economic Club of Minnesota, but did say the economy appeared to be motoring along despite the swift Fed rate hikes since March of 2022.

“Consumer spending continues to exceed our expectations,” Kashkari said. “I would have thought with 500 basis points or 525 basis points of interest rate increases we would have slammed the brakes on consumer spending, and it has not.”

The central bank’s decision to hold its benchmark overnight interest rate steady this week was unanimous.

Bowman said she supported it because of “mixed data” that alongside signs of continued “solid” economic growth also included some decline in inflation and evidence of slowing job growth. Collins and Daly do not currently have a vote on rate policy under a Fed system that rotates votes among the 12 Reserve Bank presidents year by year.

New projections issued at the end of a two-day policy meeting on Wednesday showed 12 of 19 Fed officials expect one additional quarter point rate increase this year. The Fed has two scheduled sessions left in 2023, concluding on Nov. 1 and Dec. 13.

More notably, officials projected that while they still expect to begin reducing interest rates next year as inflation falls, the path down will be slower than previously anticipated.

Though opinions are diffuse, policymakers at the median now see only a half percentage point of rate cuts in 2024 versus the full percentage point decline seen in their June quarterly outlook.

(Reporting by Howard Schneider and Ann Saphir; Editing by Paul Simao and Andrea Ricci)

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