Three Federal Reserve officials emphasized raising interest rates this year for inflation control. Federal Reserve Vice Chair for Supervision, Michael Barr, stated that monetary policy has made progress.
Barr highlighted that more work remains to be done in achieving the central bank’s goals. The officials believe that further rate hikes are necessary to bring inflation back on track.
The statements were made during a Bipartisan Policy Center meeting on Monday. The Federal Reserve officials acknowledged the close proximity to achieving their objectives but noted additional efforts required.
The Federal Reserve maintained interest rates in June after a series of consecutive rate hikes. Policymakers released projections indicating a potential half-percentage point increase by year-end. San Francisco Fed President Mary Daly expressed the need for a few more rate hikes this year.
Daly made her remarks at the Brookings Institution in Washington. Furthermore, the objective is to effectively address inflation and steer it towards a sustainable 2% path. To achieve this goal, the Fed aims to bring inflation back on track through rate adjustments.
Additionally, the decision to hold rates steady in June followed a prolonged period of consecutive rate hikes.
Cleveland Fed chief Loretta Mester aligned her view with the Fed officials’ median forecast. Mester made her remarks during an event hosted by the University of California, San Diego. Her perspective suggests the need for two additional rate increases.
Atlanta Fed President Raphael Bostic expressed a differing stance from his colleagues on inflation and policy. Moreover, Bostic stated that policymakers can exercise patience due to evidence of an economic slowdown.
He acknowledged the current high inflation rate but believes a patient approach is appropriate. Consequently, Bostic made these remarks during a speech at the Cobb County Chamber of Commerce in Atlanta. He emphasized that the current restrictive policy works as signs of economic slowdown persist.
Bostic’s view highlights the importance of considering economic conditions when determining policy actions.
Eyes are on the FOMC meeting
The FOMC is expected to resume rate increases at their July 25-26 meeting. Daly stated that the risks of inadequate inflation control outweigh the risks of excessive measures. However, she acknowledged that the gap between the two risks is narrowing.
The San Francisco Fed chief observed signs of economic slowdown and improved supply-demand balance. According to a July 7 Bureau of Labor Statistics report, job growth decelerated last month. Despite this, wage gains remained strong, as mentioned by Mester.
Mester noted that the current rate of wage growth exceeds the level consistent with 2% inflation. She further stated that this exceeds the estimated trend of productivity growth. The remarks reflect the ongoing efforts to strike a balance in managing risks and maintaining economic stability.
PCE price Index of May
The Fed remains concerned about core inflation as the PCE price index rose at a slower pace in May. However, PCE minus food and energy increased by an annual rate of 4.6% in May.
This suggests that underlying inflation persists and poses a challenge for the Fed. San Francisco Fed President Daly emphasized that inflation is their primary concern.
Forecasters Anticipate a 0.3% hike in prices
New inflation data will be available this week by releasing a BLS report on consumer prices. Forecasters surveyed by Bloomberg anticipate a 0.3% price increase excluding food and energy.
The median estimate suggests a moderation in the year-over-year rate of increase to 5%. The upcoming data will provide further insights into inflation trends and its impact on policy decisions.