The Fed’s policy rate is currently in a target range of 4.50%-4.75%. A US government report released early Tuesday showed that consumer prices they accelerated in January in the monthly reading, although the annual increase continued to decrease.
Neither Logan nor Richmond Fed President Thomas Barkin, who spoke in an interview on Tuesday, were too adamant about the inflation report, instead saying overall price pressures remain high.
“It was pretty much as expected,” Barkin told Bloomberg TV when asked about the latest CPI data, warning that it will take a while for inflation to get back close to the Fed’s 2% target. According to the measure The central bank’s preferred option, inflation is still at an annual rate of 5.0%.
“Inflation is normalizing but coming down slowly,” Barkin said. “I just think there will be a lot more inertia, more persistence in inflation than maybe we all want.”
Last year, the Fed raised interest rates faster than at any time since the 1980s to combat inflation, and officials said they expected the benchmark overnight rate would need to hit at least 5.1% before it hit. that the policy was “restrictive enough” to alleviate price pressures.
However, following the CPI release on Tuesday, interest rate futures traders now expect the Fed to raise borrowing costs three more times, pushing the policy rate into the 5.25%-5.50% range for July. , if not June.
Logan went on to flag some upside risk to his forecast.
“Even after we have enough evidence that we do not need to raise rates at a future meeting, we will have to remain flexible and tighten further if changes in the economic outlook or financial conditions require it.”
The key to that, Logan said, will be an even more substantial slowdown in wage growth and a better “balance” in what is now an “incredibly strong” job market. The unemployment rate fell in January to 3.4%, the lowest since 1969.
While there have been gains in inflation, with a particular moderation in property prices and more recently housing, he said, more is needed, especially for prices of basic services. Without an improvement there, Logan said, inflation could reach 3%, above the Fed’s target.
“My view is that given the risks, we should not be looking at a maximum interest rate or a precise rate path,” he said.
Asked if it was still true that the central bank risks doing too little rather than too much, Barkin said the need to quell inflation is the priority, though he added that incoming data would guide the Fed.
“It seems to me that the risk is on the inflation side at this point rather than the economy side,” Barkin said. “If inflation settles, we may not get that far, but if it persists at levels well above our target then we may have to do more.”
Meanwhile, Philadelphia Fed President Patrick Harker said the central bank has not finished its round of interest rate hikes to reduce inflation yet but is likely close.
