Fed officials stress that inflation remains too high and the Fed has more work to do

Federal Reserve members speaking across the country on Friday said that while there are signs that inflation is starting to slow, they still believe inflation is too high and more needs to be done to reduce price increases.

“Despite some recent encouraging signs, inflation remains very high and therefore of great concern,” Federal Reserve Governor Lisa Cook said in a speech in New Orleans on Friday.

Richmond Fed President Thomas Barkin made similar comments, noting that while inflation may have peaked, there is still work to be done.

“We still have work to do. Inflation is very high and we have to stay at it until we get back to our 2 percent target on a sustained basis,” Barkin said in a speech in North Carolina.

Inflation, as measured by the consumer price index, rose 7.1% in November from a year earlier, slowing from October and down two percentage points from June’s reading, which showed prices rose 9.1% from a year earlier. The December inflation reading will be released this coming Thursday, January 12.

Barkin warned that cutting interest rates too soon puts the Fed’s credibility at risk and could require more aggressive action later.

“The experience of the ’70s showed that if you pull back from inflation too quickly, it comes back stronger and requires the Fed to do much, much more damage,” Barkin said. “If you change the target before it is achieved, as some have recently argued, you risk the Fed’s credibility, which in turn increases the sacrifice required to control inflation.”

Richmond Federal Reserve Bank President Thomas Barkin poses during a break at the Dallas Fed’s technology conference in Dallas, Texas, U.S., May 23, 2019. REUTERS/Ann Saphir

Speaking at an event in Kansas City on Friday, Kansas City Fed President Esther George said the rate hike was working to slow demand and give supply chains time to catch up, particularly for goods, but more needed to be done. .

“I think it may take some time for inflation to come back,” George said. “But I want the public to understand that the Fed intends to get there. We’re going back to 2%. We’ll have to see how the economy reacts to know whether we should do more or less.”

“While recent inflation data are encouraging, restoring price stability will require addressing price-push imbalances,” he said.

George also added that continuing balance sheet is important to minimize the Fed’s footprint and impact 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 slowed in the final month of the year, although the economy added a still-strong 223,000 jobs in December and more than 4.5 million jobs in 2022.

Wages rose 4.6% in December from a year earlier, down from 4.8% in November, still higher than pre-pandemic levels and above the Fed’s 2% inflation target.

Atlanta Fed President Raphael Bostic said in an interview with CNBC on Friday that the latest job numbers did not change his views on the economy and inflation.

“It doesn’t really change my outlook. I was looking for the economy to continue to slow down from the strong position it was in over the summer,” Bostic said. “It’s just the next step … it’s gradual … because we have to stay the course, inflation is very high, we have to reduce these imbalances.”

Looking ahead, Cook says the outlook for inflation will depend in part on disruptions in production and bottlenecks in supply chains, and what subsequent cost pressures will be.

“We need to be vigilant so that cost pressures and disruptions during the pandemic do not have lasting effects on inflation.” “If cost shocks and supply disruptions keep inflation high for a sufficiently long period of time, inflation expectations of households and firms could rise further – putting further upward pressure on inflation.”

Like Cook, George is concerned that the supply issues affecting the economy and inflation may take longer to resolve, and that the Fed may take that into account when setting monetary policy in the future.

George also cited risks to the global outlook, including a recession in Europe and the continued impact of the pandemic in China. “Overall, the global outlook does not offer much of a buffer for the U.S. economy if growth here slows significantly,” George said.

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