[1/3] The Federal Reserve building is pictured on March 19, 2019 in Washington, United States. Portal/Leah Millis/
PALO ALTO, California, May 12 (Portal) – The Federal Reserve is bringing interest rates closer to what it needs to win the battle against inflation, two US central bankers said on Friday, though neither gave a clear signal whether they would feel like you’ve reached that point.
A week after Fed policymakers raised their target range for interest rates to 5% to 5.25%, comments from Fed Governor Philip Jefferson and St. Louis Fed President James Bullard suggest some uncertainty about whether the Fed will actually take a pause Next month will see rate hikes as widely expected.
Indeed, Gov. Michelle Bowman, a third Federal Reserve chair to speak earlier in the day, signaled that she believes further monetary tightening is still warranted unless inflation comes down more convincingly.
The Fed has hiked its benchmark interest rate by a full five percentage points in the last 14 months – the fastest rate of tightening in 40 years.
The Fed’s preferred inflation rate has fallen to 4.2% from 7% last summer.
Meanwhile, unemployment, which had been expected to rise due to rising borrowing costs, has instead fallen to 3.4%, its lowest level since 1969.
“Is inflation still too high? Yes,” Fed Governor Philip Jefferson said at a monetary policy conference at the Hoover Institution. “Has the recent disinflation been uneven and slower than any of us would like? Yes. But my understanding of this evidence is that we ‘do or are expected to do what is necessary,'” which is the dictionary definition, he said, to be “on the right track.”
At the same time, Jefferson refrained from ringing victory bells, observing that the poor recent progress in core inflation, particularly service inflation, was “bad news”. In April, core US consumer prices — excluding volatile gas and food prices — rose 5.5% after rising 5.6% in March.
The Fed is targeting 2% inflation.
Jefferson’s comments could draw particular attention after he was named the next Fed Vice Chairman by US President Joe Biden earlier in the day, in a key role in shaping US monetary policy.
Fed Chair Jerome Powell hinted that the central bank could hold off further rate hikes as it assesses the impact of its past tightening, as well as the impact of recent strains in the banking sector on lending and lending.
Jefferson said on Friday he feels “the full impact of our rapid tightening is likely to lie ahead” and he currently believes the spate of regional bank failures is likely to have only a mild tightening effect on credit conditions. He did not comment on a possible break.
Pretty good prospects
St. Louis Fed President James Bullard, speaking at the same conference, said he found the recent stabilization in inflation expectations near the Fed’s 2 percent target “encouraging”, adding: “The outlook for further disinflation are pretty good.”
That’s remarkable for a policymaker who was among the first and most vocal to push for sharp rate hikes to fight inflation as early as mid-2021.
But since then, he said, the Fed’s rate hikes have helped stem the worrying rise in inflation expectations that, if left unchecked, could have spiraled actual inflation out of control.
“Monetary policy is currently at the low end of what is arguably sufficiently restrictive given the current macroeconomic conditions,” he said.
And yet he said, “The bad news for the hawks in the space is that you’re barely in the zone of sufficiently restrictive politics.”
The Fed’s next rate-setting meeting is June 13-14.
Reporting by Ann Saphir; Edited by Diane Craft
Our standards: The Trust Principles.
Ann Sapphire