It has been a busy week of public engagements for the Federal Reserve's top officials. One thing has become clear: There is an intensifying debate about whether to hike again or pause at the next meeting.

Some officials are concerned inflation isn't cooling fast enough, which could prompt an 11th consecutive rate hike when policymakers meet in June. Officials didn't express concerns over credit conditions deteriorating sharply and some said they remain open to pausing.

"So far, the data continue to support the committee's view that bringing inflation down will take some time," Fed Chair Jerome Powell said Friday in a moderated discussion with former central bank chair Ben Bernanke. However, he noted that there is lingering uncertainty on how much demand will be eroded from tighter credit conditions and the lagged effects of rising interest rates. Wall Street took that to mean a pause is on the table.

Earlier this month, Fed officials voted unanimously to raise the benchmark lending rate by a quarter point to a range of 5-5.25%, while signaling a possible pause ahead. The Fed launched its most aggressive rate-hiking campaign since the 1980s in March 2022 to battle inflation that has remained stubbornly high.

Although price hikes have cooled off in recent months, some officials have questioned this week whether the economy is headed toward 2% inflation.

"I'm keeping an open mind and a close watch on economic developments as we head toward the next meeting in mid-June," Federal Reserve Bank of Dallas President Lorie Logan said at a banking conference on Thursday in Texas. "I remain concerned about whether inflation is falling fast enough," she said. Logan is a voting member in the Fed committee that decides interest rates.

Pausing rate hikes as a response to recession scares is reminiscent of the "stop-and-go" strategy the Fed employed in the 1970s, when the central bank alternated between raising rates to fend off inflation and stopping them to shore up growth at the same time. The Fed didn't succeed at either when it did that, and inflation instead settled at elevated levels.

Inflation remains a thorn in the Fed's side

Combating inflation remains the Fed's top priority, even after the rapid rise in rates led to the collapse of three banks in the last couple of months. Fed officials describe the sector as still "sound and resilient" and have voted twice to hike rates since the March collapse of Silicon Valley Bank and the failure of First Republic Bank just days before the Fed's May meeting.

But instability in the banking sector has led to some tightening of credit conditions, which, economists say, could essentially perform the same role as a rate hike by slowing investment.

"There is still a lot of the impact of the 500 basis points we did in the last year that's still to come, and you add on that there are tight credit conditions, and I think that we should be extra mindful," Chicago Fed President Austan Goolsbee told CNBC in a recent interview. "We need to take that into account and the only way to do that is sit and watch it."

The closely watched core index of the Fed's preferred inflation gauge, the Personal Consumption Expenditures index, showed only a slight decline in March, up 4.6% that month from a year ago, and a slight easing from the 4.7% growth rate notched in February. Similarly, the Consumer Price Index also showed only a modest deceleration in its headline reading in April.

"I do expect disinflation, but it's been slower than I would have liked, and it may warrant taking out some insurance by raising rates somewhat more to make sure that we really do get inflation under control," St. Louis Fed President James Bullard told the Financial Times in an interview on Thursday. Bullard isn't voting on interest-rate decisions this year.

Burgeoning job market

A strong labor market fuels consumer spending and the Fed has been trying to tame inflation by curbing demand. Employers added a robust 253,000 jobs in April and average hourly earnings rose by 0.5% that month. The Employment Cost Index showed that compensation gains picked up in the first quarter.

"We at the Federal Reserve probably have more work to do on our end to try to bring inflation back down," Minneapolis Fed President Neel Kashkari, a voting member, said Monday at a conference in Minnesota. "The labor market is still hot, and we have not seen much softening in the labor market. So, that tells me that we have a long way to go before we get inflation back down."

Powell echoed a similar view on the labor market's role in resilient price pressures.

"I do think that labor market slack is likely to be an important factor in inflation going forward," he said Friday.

Data gauging the job market is set to be released in a few weeks and a CPI report on the first day of the Fed's two-day meeting in June will further inform officials on the trajectory of inflation and the broader economy. Of course, Fed officials' thinking on monetary policy could drastically change if the United States defaults on its debt, which could happen as soon as June 1.

"You've got questions about the debt ceiling and what impact that might have. You've got questions about credit tightening and how significant that might be, so I think it gives you time and optionality to say either there's still more we need to do so let's do more, or it's still OK to wait and we'll wait a bit," Richmond Fed President Thomas Barkin told Bloomberg in an interview on Tuesday.

Fed officials always mention that their views on interest rates largely depend on what economic indicators show, resisting taking an absolute stance on how they will vote. Powell said Friday that communication about the central bank's future monetary-policy actions sometimes "comes with a cost of misinterpretation and it also may limit the flexibility."

"We've come a long way in policy tightening and the stance of policy is restrictive and we face uncertainty about the lagged effects of our tightening so far, and about the extent of credit tightening from recent banking stresses," Powell said.

"So, today, our guidance is limited to identifying the factors we'll be monitoring as we assess the extent to which additional policy firming may be appropriate to return inflation to 2% over time."