WASHINGTON, March 2 (Portal) – Federal Reserve officials on Thursday wrestled with whether the latest data showing inflation, jobs and spending are hotter-than-expected is a “blip” or a sign that there is yet to be higher interest rates may be needed to slow price increases.
The separate comments from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostic raised a key question for the next phase of the Fed’s fight to bring down inflation: Is monetary policy once again slipping behind the curve in a surprisingly strong economy that needs even tighter credit conditions , or is slower growth and lower inflation already underway?
So far, even hawkish voices like Waller say the jury is set, as jobs and inflation data to be released between now and the Fed’s upcoming March 21-22 meeting are likely key to whether he and perhaps other policymakers tend to higher interest rates.
“Last month we received a flood of data that has challenged my view … that the Federal Open Market Committee has made progress in moderating economic activity and curbing inflation,” Waller said in a comment to Midsize on Thursday Bank Coalition of America. an organization of around 100 financial institutions with assets ranging from $10 billion to $100 billion.
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“It could be that progress has stalled, or it could be that the numbers released last month were an outlier,” he said.
If upcoming data shows the economy weakening and inflation slowing, Waller said he would “support” the federal funds’ target interest rate, which would rise to about the same point policymakers forecast in December, when 13 out of 19 officials saw that interest rates would be somewhere between 5.1% and 5.4%.
The current key interest rate is between 4.5% and 4.75%.
“On the other hand, if these data reports continue to get too hot, then the policy target range needs to be raised even further this year to ensure we don’t lose momentum,” Waller said.
Bostic also said he was ready to hike rates higher if upcoming data doesn’t show inflation “clearly” falling from its January level of around 5.4% towards the central bank’s 2% target.
But he also felt the impact of the Fed’s rate hikes so far may be just beginning, a reason to be cautious when deciding on further rate hikes lest the central bank go too far.
“Slow and steady will be the appropriate course of action,” Bostic said in comments to reporters, with perhaps just two more quarter-point hikes needed before the Fed can pause.
Fed rate hikes “should last through the spring… A moderate pace reduces the likelihood that we will overshoot” and hurt the economy.
Reporting by Howard Schneider; Edited by Nick Zieminski and Stephen Coates
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Howard Schneider