Federal Reserve officials started the new year reiterating their concerns about US inflation being too hot, with one regional president saying interest rates should remain high well into 2024 to cool price growth.
(Bloomberg) — Federal Reserve officials started the new year reiterating their concerns about US inflation being too hot, with one regional president saying interest rates should remain high well into 2024 to cool price growth.
“I have raised my forecast over 5%,” Federal Reserve Bank of Kansas City President Esther George said Thursday in an interview on CNBC television, referring to her projection for the federal funds rate. “I see staying there for some time, again, until we get the signals that inflation is really convincingly starting to fall back toward our 2% goal.”
When asked if that was a projection that it would be appropriate to hold the federal funds rate above 5% well into 2024, she said, “it is for me.”
Her counterpart at the Atlanta Fed, Raphael Bostic, said inflation is “way too high” and remains the biggest headwind in the US, reiterating that he and his colleagues remain determined to bring price growth down to the target range.
“I appreciate recent reports that include signs of moderating price pressures, but there is still much work to do. I’m sure my central bank colleagues from around the world agree with me on this,” he said at a Fed conference in New Orleans Thursday.
The Fed last year raised its benchmark interest rate from nearly zero in March to 4.3% by its final meeting in December, marking the highest level since 2007. Officials on the central bank’s policy-setting Federal Open Market Committee forecast at the meeting that it would be appropriate to raise the federal funds rate to 5.1% in 2023, according to their median projection.
In 2022, inflation rose to the highest levels in four decades before beginning to recede in the final months of the year. But Fed officials have homed in on services prices, which they see as closely linked to wages, as an area where inflation remains elevated.
“Where we really see the persistence in that inflation seems to be in the non-housing part of the services side of the economy,” George said. “So, I think that’s going to be where I’ll be watching for the real clues to see whether we are getting traction with our policy in that area.”
The Kansas City Fed chief, who will retire this month after 11 years at the helm of the bank, warned that the Fed’s campaign to bring inflation down could result in an economic downturn.
“I’m not forecasting a recession, but I’m quite realistic that when you see below-trend growth — and the idea that our instrument is going to work on demand, bringing that down — it doesn’t leave a lot of margin there,” George said. “Not my forecast, but I do understand that bringing demand down creates that sort of possibility.”
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