By Ann Saphir
PALO ALTO, Calif. (Reuters) – The Federal Reserve is bringing interest rates closer to the levels needed to win the fight against inflation, a pair of U.S. central bank officials said on Friday. Although neither of them made it clear whether they thought they had reached that point.
Fed Governor Philip Jefferson and St. Louis Federal Reserve Bank of Comments from Governor James Bullard signaled some uncertainty over whether the Fed will pause rate hikes next month, as widely expected.
In fact, a third US central bank governor spoke earlier in the day, with Governor Michelle Bowman saying she thinks further tightening may be appropriate unless inflation falls be more convincing.
The Federal Reserve has raised its benchmark interest rate by a full five percentage points over the past 14 months – this is 14 The fastest pace of tightening in years.
Inflation, the Fed’s preferred measure, has fallen to 4.2% from 7% last summer.
At the same time, the unemployment rate, which was expected to rise as borrowing costs soared, fell to 3.4%, the lowest level since 2021.
“Is inflation still too high? Yes,” Fed Governor Philip Jefferson told the Hoover Institution’s monetary policy conference. “Is current deflation uneven and slower than any of us would like? Yes. But my reading of the evidence is that we are ‘doing what is necessary or desired,'” he said, using the dictionary definition “On Tracks”.
Jefferson, meanwhile, didn’t ring any victory bells, saying the recent little progress in core inflation, particularly services inflation, was “bad news”. Core U.S. consumer prices (which exclude volatile natural gas and food prices) rose 5.5% in April after rising 5.6% in March.
The Fed is targeting 2% inflation.
Jefferson’s comments are likely to draw particular attention after he was nominated earlier in the day by U.S. President Joe Biden to be the next Fed vice chairman, who plays a key role in setting U.S. monetary policy.
Federal Reserve Chairman Jerome Powell signaled the central bank may pause further rate hikes as it assesses the impact of past tightening and the impact of recent banking stress on lending and credit.
Jefferson said on Friday that he believes “the full impact of our rapid tightening policy is still likely to be felt before us,” and his current view is that a spate of regional bank failures may only bring The effect of mild tightening policy on credit conditions. He did not comment on the possible suspension.
St. Louis Fed President James Bullard, speaking at the same meeting, said he found near-term inflation expectations stable at the Fed’s 2 % target “encouragingly,” adding that “prospects for continued disinflation are very good.”
Policymakers spearheaded the Pushing for big rate hikes to fight inflation is notable.
But since then, the Fed’s rate hikes have helped reduce a worrying rise in inflation expectations that, if left unchecked, could lead to runaway real inflation, he said.
“Monetary policy is now at the low end of what is arguably sufficiently stringent given current macroeconomic conditions,” he said.
However, he said, “the bad news for the hawks in the room is that you’re barely in the zone” for sufficiently restrictive policies.
The next Fed meeting will set interest rates in June -.