Federal Reserve officials speaking across the country on Friday said that while there are signs inflation is slowing, they still believe inflation is too high and more needs to be done to stem price hikes reduce.
“Inflation, despite some encouraging signs, remains far too high recently and is a major concern,” Federal Reserve Governor Lisa Cook said in a speech in New Orleans on Friday.
Richmond Fed President Thomas Barkin took a similar view, noting that while inflation may have peaked, there is still work to be done.
“We still have work to do. Inflation is too high and we need to hold that fall until we get back to our 2 percent target on a sustainable basis,” Barkin said in a speech in North Carolina.
In November, inflation, as measured by the CPI, rose 7.1% yoy, slowing since October and falling two percentage points after June data showed prices rose 9.1% yoy. December inflation data is due to be released next Thursday, January 12th.
Barkin warned that raising rates too early risks the Fed’s credibility and may require more aggressive action later.
“The experience of the 1970s showed that if you cut inflation too early, it will come back stronger, forcing the Fed to do even more and do even more damage,” Barkin said. “If you change the target before it’s reached, as some have recently advocated, you jeopardize the Fed’s credibility, which in turn increases the sacrifice required to control inflation.”
Federal Reserve Bank of Richmond President Thomas Barkin poses during a break at a Dallas Fed technology conference in Dallas, Texas, U.S. May 23, 2019. Portal/Ann Saphir
Kansas City Fed President Esther George noted at an event in Kansas City on Friday that raising interest rates has helped slow demand and give supply chains time to catch up, particularly in goods, but that’s yet to happen more needs to be done.
“I think it might take a while for inflation to come back down,” George said. “But I want the public to understand that the Fed intends to get there. We go back to 2%. We just need to see how the economy reacts to know if we need to do more or less.”
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“While recent data on inflation has been encouraging, restoring price stability will require addressing the imbalances that have been driving prices up,” she said.
George added that it is important that the balance sheet outflow continues to minimize the Fed’s footprint and influence on financial markets. The Fed is currently reducing the size of its balance sheet at a rate of $95 billion per month.
The comments came after the December jobs report showed wage growth had slowed in the last month of the year, although the economy still added a robust 223,000 jobs in December and more than 4.5 million in 2022.
Wages rose 4.6% year over year in December, compared with a 4.8% drop in November, although they are still higher than before the pandemic and a rate above the Fed’s 2% inflation target .
Atlanta Fed President Raphael Bostic said in an interview on CNBC on Friday that the latest jobs numbers don’t change his outlook for the economy and inflation.
“It doesn’t really change my prospects. I’ve been waiting for the economy to steadily slow down from the strong position it had over the summer,” Bostic said. “This is just a next step in that … it’s incremental … so we have to stay the course, inflation is too high, we have to reduce these imbalances.”
Looking ahead, Cook says the inflation outlook will depend in part on production disruptions and supply chain bottlenecks, and the impact of subsequent cost pressures.
“We need to be vigilant to ensure that pandemic-era cost pressures and disruptions don’t have a lasting impact on inflation,” Cook said. “If cost shocks and supply disruptions keep inflation high long enough, household and corporate inflation expectations could rise – a development that could put additional upward pressure on inflation.”
Like Cook, George is concerned that supply issues affecting the economy and inflation may take longer to resolve and the Fed may take this into account in future monetary policy.
George also pointed to risks to the global outlook, including a recession in Europe and the ongoing impact of the pandemic in China. “Overall, the global outlook does not point to a large buffer for the US economy if growth here slows significantly,” George said.
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