Key Federal Reserve officials said Friday that they are not “complacent” with levels of inflation as the Fed’s path of rate hikes remains on pause.

In minutes released this week, the Fed noted that “muted” inflation warranted a “patient” approach to monetary policy as the central bank assesses economic developments in financial markets and abroad.

San Francisco Fed President Mary Daly and New York Fed President John Williams now say that they have concerns that measures of inflation will stay persistently low, underscoring the Fed’s strategy of holding steady on its interest rate policy while the U.S. economy develops.

“We don’t want to be complacent about inflation,” Williams said, pointing to non-action from the Fed during the 1960s that enabled an expanding U.S. economy to fall into stagflation in the 1970s.

A ‘crazy successful’ initiative

Their remarks were made in response to a paper from three economists analyzing the Phillips curve — which tracks unemployment against inflation — and suggesting that tight labor markets leading to inflationary pressures. The paper, from Deutsche Bank’s Peter Hooper, former Fed Governor Frederic Mishkin, and University of Chicago professor Amir Sufi, notes that some parts of the country are already seeing these effects.

While they write that they cannot predict if inflation will indeed rise in the future, the authors say the Fed “cannot remain ‘patient’ about raising the federal funds rate” if inflation and inflation expectations start to rise.

“[O]ur analysis [is] not about whether inflation will rise in the near future, but rather that the Fed should not be complacent about inflationary pressures,” their paper reads.

Daly and Williams acknowledged the need to be vigilant for possible inflationary pressures, but noted that on trend, inflation has stayed below the Fed’s 2% target for a long time.

“In an uncertain world, it is somewhat difficult to determine complacency from appropriate policy. You don’t want to react too quickly, I would argue, to the idea that inflation could be around the corner,” Daly said.

St. Louis Fed President James Bullard pointed out that on the whole, inflation remains stable under the Fed’s “crazy successful” initiative of clearly communicating its 2% target. But Bullard also sympathized with his fellow policymakers’ skepticism that tight labor markets in and of themselves make a case for thinking about future rate hikes.

“We have to look elsewhere for signals about the future of inflation,” Bullard said.

Bullard is a voting member this year’s Federal Open Market Committee but Daly is not. Williams is a sitting member of the committee.