Fed policy on right track, but inflation still too high, officials say
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[May 13, 2023] By
Ann Saphir
PALO ALTO, Calif. (Reuters) -The Federal Reserve is getting interest
rates closer to where they need to be to win the battle against
inflation, a pair of U.S. central bankers said on Friday, though neither
gave a clear signal on whether they feel they have reached that point.
Coming a week after Fed policymakers raised their target range for the
benchmark rate to 5%-5.25%, the remarks - from Fed Governor Philip
Jefferson and St. Louis Fed President James Bullard -- suggest some
uncertainty about whether the Fed will in fact pause interest-rate hikes
next month, as is widely expected.
Indeed a third U.S. central banker speaking early in the day, Governor
Michelle Bowman, signaled she feels further policy tightening may yet be
appropriate, unless inflation drops more convincingly.
The Fed has raised its benchmark interest rate five full percentage
points over the past 14 months - the fastest pace of tightening in 40
years.
Inflation by the Fed's preferred measure has eased from 7% last summer
to 4.2%.
Meanwhile unemployment, which had been expected to rise as borrowing
costs surged, has instead fallen to 3.4%, the lowest since 1969.
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"Is inflation still too high? Yes," Fed Governor Philip Jefferson said
at a monetary policy conference at the Hoover Institution. "Has the
current disinflation been uneven and slower than any of us would like?
Yes. But my reading of this evidence is that we are 'doing what is
necessary or expected' of us," which is the dictionary definition, he
said, of being "on track."
At the same time, Jefferson did not ring any victory bells, offering the
observation that little recent progress on core inflation, particularly
in services inflation, is "bad news." In April, core U.S. consumer
prices -- stripping out volatile gas and food prices - rose 5.5% after
advancing by 5.6% in March.
The Fed targets 2% inflation.
Jefferson's remarks may draw particular attention after he was nominated
earlier in the day by U.S. President Joe Biden to be the next Fed vice
chair, a key role in shaping U.S. monetary policy.
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The Federal Reserve building is pictured
in Washington, U.S., on March 19, 2019. REUTERS/Leah Millis/
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Fed Chair Jerome Powell signaled the central bank may pause further
rate hikes as it assesses the impact of its past tightening, as well
as the effect of recent bank sector stress on lending and credit.
Jefferson on Friday said he feels "the full effects of our rapid
tightening are still likely ahead of us," and his current view is
that the string of regional bank failures probably will have only a
mild tightening effect on credit conditions. He did not give his
views on a possible pause.
PRETTY GOOD PROSPECTS
St. Louis Fed President James Bullard, who spoke at the same
conference, said that he finds "encouraging" the recent stablization
of inflation expectations near the Fed's 2% target, adding, "the
prospects for continue disinflation are pretty good."
That's notable from a policymaker who was among the first and most
vocal to push for sharp rate hikes to fight inflation, back in
mid-2021.
But since then, he said, the Fed's rate hikes have helped bring down
what had been a worrying rise in inflation expectations that, if
left unchecked, could have sent actual inflation spiraling out of
control.
"Monetary policy is now at the low end of what is arguably
sufficiently restrictive given current macroeconomic conditions," he
said.
And yet he said, "the bad news for the hawks in the room is, you are
barely in the zone" of restrictive-enough policy.
The Fed next meets to set interest rates June 13-14.
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(Reporting by Ann SaphirEditing by Shri Navaratnam)
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