Yahoo Finance Fed officials emphasize inflation remains too high and the Fed has more work to do
Members of the Federal Reserve speaking around the country Friday said that while there are signs inflation is starting to slow, they still believe inflation is too high and more work needs to be done to bring down price increases.
“Inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern,” Federal Reserve Governor Lisa Cook said in a speech Friday in New Orleans.
Richmond Fed President Thomas Barkin made similar comments, noting that while inflation is likely past its peak, there's still work to do.
"We still have work to do. Inflation is too high, and we will need to stay on the case until it is sustainably back to our 2 percent target," Barkin said in a speech in North Carolina.
In November, inflation as measured by the consumer price index rose 7.1% over the prior year, a slowdown from October and a drop of two percentage points after June's reading showed prices rose 9.1% over last year. The December reading on inflation is set for release this coming Thursday, January 12.
Barkin warned backing off hiking rates too soon risks the Fed's credibility, and could require more aggressive action later.
"The experience of the '70s showed that if you back off on inflation too soon, it comes back stronger, requiring the Fed to do even more, with even more damage," Barkin said. "If you change the target before it is achieved, as some have recently advocated, you put the Fed’s credibility at risk, which in turn increases the sacrifice required in order to control inflation."
Kansas City Fed President Esther George, speaking at an event in Kansas City on Friday, noted the increase in interest rates has worked to slow demand and allow time for supply chains to catch up, especially for goods, but that more will need to be done.
"I think it could take a while for inflation to come back down," said George. "But I want public to understand that the Fed intends to get there. We are going back to 2%. We will just have to see how the economy responds to know whether we need to do more or less."
"While the recent data on inflation has been encouraging, eliminating the imbalances that have been driving prices higher will be required to restore price stability," she said.
George also added it's important the balance sheet runoff continue so as to minimize the Fed's footprint and influence in financial markets. The Fed is currently reducing the size of its balance sheet at a pace of $95 billion each month.
These comments came after the December jobs report showed wage growth decelerated in the final month of the year, though the economy still added a robust 223,000 jobs in December and more than 4.5 million in 2022.
Wages grew 4.6% over the prior year in December, down from a clip of 4.8% in November, though still higher than pre-pandemic levels and a rate that is above the Fed's 2% inflation target.
Atlanta Fed President Raphael Bostic said Friday in an interview on CNBC the latest jobs figures don't change his outlook for the economy and inflation.
"It doesn't really change my outlook. I've been looking for the economy to continually slow from the strong position it was at in the summer time," Bostic said. "This is just a next step in that...it's going incrementally...because of that we got to stay the course, inflation is too high, we need to reduce those imbalances."
Looking ahead, Cook says the outlook for inflation will depend in part on production disruptions and bottlenecks in supply chains, and how subsequent cost pressures play out.
“We must be vigilant to ensure that pandemic-era cost pressures and disruptions do not have lasting effects on inflation,” said Cook. “If cost shocks and supply disruptions keep inflation elevated for a long enough period, households’ and firms’ inflation expectations could move higher — a development that could put additional upward pressure on inflation.”
Like Cook, George is concerned that supply issues impacting the economy and inflation may take longer to resolve, and that the Fed might consider this in making monetary policy in the future.
George also noted 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 suggest much of a buffer for the U.S. economy if growth were to slow appreciably more here," said George.
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