(Bloomberg) – Two Federal Reserve officials said the central bank may need to raise interest rates further to contain price pressures, which are showing little sign of easing in some sectors.
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Fed Governor Christopher Waller said Friday headline inflation has “halved” from its peak last year, but prices excluding food and energy have barely moved for the past eight or nine months.
“That’s the worrying thing for me,” Waller said during a question-and-answer session following a speech in Oslo, Norway. “We see that interest rates are having some impact on parts of the economy. The job market is still strong but core inflation just isn’t moving and that will likely require further tightening to try to bring it down.”
At a separate event on Friday, Richmond Fed President Thomas Barkin said inflation remained “too high” and “stubborn”.
“I want to reiterate that 2% inflation is our target and that I’m still trying to be won over by the plausible story that slowing demand will bring inflation back towards that target relatively quickly,” Barkin said in one Speech in Ocean City, Maryland. “If the upcoming data doesn’t support this story, I’m happy to do more.”
Read more: Fed’s Barkin content to do more to slow robust US economy
The US Federal Open Market Committee paused its string of interest rate hikes on Wednesday, but policymakers forecast rates would rise more than previously expected in response to surprising ongoing price pressures and strength in the job market.
Chicago Fed President Austan Goolsbee said Friday the pause would give officials time to assess how their policies are affecting the economy.
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“I look at it as a reconnaissance mission, which I’m pausing to scout out now before I rush up the hill another time,” Goolsbee said in an interview with NPR.
This week’s consumer price index showed headline inflation slowing, but core prices excluding food and energy continued to rise at a rate that has worried Fed officials. Latest data showed that employers continued to add jobs at a rapid pace in May and the number of vacancies increased in April.
Barkin warned that easing policy prematurely would be a costly mistake.
“I’m aware that there is a risk of a deeper slowdown as a result, but the clear lesson from the 1970s is that if you cut inflation too soon, inflation will come back stronger and require the Fed to do even more he said. “It’s not a risk I want to take.”
policy report
Separately, the Fed released a new report on Friday that said tighter US credit conditions after bank failures in March could weigh on growth and that the extent of further monetary tightening would depend on incoming data.
“The FOMC will drive the meeting by determining the extent of additional policy tightening that may be appropriate to bring inflation back to 2% over time, based on the body of incoming data and its impact on the outlook for economic activity and Inflation,” the Fed said in its semi-annual report to Congress.
Read more: Fed says tighter credit conditions would weigh on US growth
The Fed report, which provides lawmakers with updated information on economic and financial developments and monetary policy, was released on the central bank’s website ahead of Chair Jerome Powell’s testimony before the House Financial Services Committee on June 21. He will appear before the Senate Banking Panel the next day.
“There is evidence that the recent stress in the banking sector, and related concerns about deposit outflows and funding costs, have contributed to tightening and expected tightening of lending standards and conditions at some banks, beyond what those banks would have had without the stress banking sector,” the report said.
– With the support of Catarina Saraiva.
(Updates with comment from Goolsbee in seventh paragraph.)
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