A senior Federal Reserve official said the economy will need higher borrowing costs for a few years to bring down inflation and prevent price pressures from strengthening.

“We still have some work to do to get interest rates in the right place,” said New York Fed President John Williams at The Wall Street Journal’s CFO Network Summit in New York on Wednesday. “We need a sufficiently restrictive stance” of rates, and “we’re going to need to maintain that for a few years to make sure we get inflation to 2%.” 

Fed officials last week approved lifting their benchmark federal-funds rate by a quarter-percentage point to a range between 4.5% and 4.75%. That was a smaller increase than at their previous two policy meetings, when they raised it by a half point in December and 0.75 point in November.

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A shift in sentiment on Federal Reserve policy is emerging in interest-rate options, where several big wagers on the central bank’s benchmark rate reaching 6% — nearly a percentage point higher than the current consensus — have popped up this week.

The thinking behind them flies in the face of what has been an article of faith over the past two months: that the Fed, after raising rates eight times in the past year, is near the end of its tightening cycle. Already, rates are high enough to cause a recession that will require the central bank to reverse course this year, the thinking goes.

But strong January employment data released Friday challenged that thesis, and comments by Fed officials this week have eroded it further. Now, a pause after just one or two more rate hikes is not looking like such a done deal.

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A reversal in the epic U.S. dollar rally hasn’t yet provided much respite to large U.S. multinational companies.

Companies in the S&P 500 that derive more than half of their revenue outside the U.S. are on pace to post an 8.7% slide in fourth-quarter earnings, according to FactSet data through Monday. In contrast, companies with most of their sales in the U.S. are poised to record a 3% earnings drop. About 55% of the companies in the index have reported so far.

Apple Inc., which last week posted its first quarterly revenue decline in nearly four years, said unfavorable foreign-exchange rates posed a challenge in the period, and revenue actually increased when adjusted for currency fluctuations. Caterpillar Inc. and International Business Machines Corp. recently said that the strength of the U.S. dollar hurt their results. 

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The chief executive of JPMorgan Chase & Co. (JPM.N), the biggest U.S. bank, cautioned against declaring victory against inflation too early, warning the Federal Reserve could raise interest rates above the 5% mark if higher prices ended up "sticky."

Dimon's warning came after Federal Reserve officials said more rate rises are on the cards, although none were ready to suggest that January's hot jobs report could push them back to a more aggressive monetary policy stance.

In reference to inflation, Dimon said "people should take a deep breath on this one before they declare victory because a month’s number looked good."

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