Top Federal Reserve officials on Thursday dismissed speculation that the Federal Reserve would soon halt its aggressive monetary tightening campaign, instead emphasizing the need for more rate hikes.
In her first public statements since becoming governor on the Federal Open Market Committee, Lisa Cook described inflation as a “short- and long-term threat” and said it was “crucial” for the Federal Reserve “to prevent an inflationary psychology.” arises”.
“In our current economy, with a very strong labor market and inflation well above our target, I believe a risk management approach requires a strong focus on taming inflation,” she said at an event hosted by the Peterson Institute for International Economics, a Washington-based think tank .
“Aside from the immediate impact of higher prices on households and businesses, the longer it lasts and the more people expect it, the greater the risk that elevated inflation will take hold,” she added.
Separately, another Fed Governor, Christopher Waller, said on Thursday that the incoming data suggests inflation is “far from the FOMC’s target and unlikely to fall anytime soon.”
“Although more data will follow, I believe we have yet to make meaningful progress on inflation, and until that progress is both significant and sustained, I support continued rate hikes as well as continued reductions in the Fed’s balance sheet,” he said at an event the University of Kentucky.
“We currently face no compromise between our employment target and our inflation target, so monetary policy can and must be used aggressively to bring down inflation,” he added.
Officials’ comments come as financial markets have reeled in an effort to digest both the bleak global growth outlook and emerging signs of stress. Some investors and economists have speculated that, as a result, the Fed will have to back off its policy tightening plans and either slow down significantly or pause altogether in the coming months.
The Fed is debating whether to unveil a fourth straight rate hike at its upcoming November meeting, a move that would lift the federal funds rate to 3.75 percent to 4 percent. Most officials are forecasting the policy rate to hit 4.4 percent by the end of the year and 4.6 percent in early 2023.
While the November decision will depend in part on fresh jobs data expected on Friday and the next inflation report due next week, Fed officials have specifically warned that economic conditions are not yet warranting the central bank’s move from its Ultra deviates -aggressive approach.
Waller said Thursday he doesn’t expect his assessment of inflation, jobs and broader economic developments to be materially changed by the incoming data, stressing that “most policymakers will think the same way.”
Also on Thursday, Minneapolis Fed President Neel Kashkari said the central bank was “a long way from” halting its rate hike — a message also echoed this week by the Atlanta Fed’s Raphael Bostic and the Fed’s Mary Daly in San Francisco.
Cook, the first black woman to serve as Fed governor, on Thursday supported the central bank’s decision to “carry forward” its rate hikes – which she says has helped contain demand more quickly. Restoring price stability would likely require not only “ongoing rate hikes,” she continued, but also keeping interest rates at levels that would stifle the economy “for some time.”
During a discussion following her comments, Cook was asked about liquidity in the US Treasury market, which traders had warned was tight. The treasury market, she said, “is working well” with “large trade volumes being executed.”
Waller said he was “confused” by market speculation that the Fed would slow its rate hikes or halt them sooner due to financial stability concerns, and said markets were “working effectively”.
While Cook emphasized that the economic impacts caused by changes in monetary policy work with “long and variable lags,” she said any policy adjustments should depend on “if and when we see an actual fall in inflation in the US.” data and not only in the forecasts”.
At a separate event on Thursday, Chicago Fed President Charles Evans said the central bank was most concerned about “dynamics” in core inflation, which fades out volatile elements like food and energy.
Economists have warned that waiting for actual inflation to fall would all but tighten the Fed and cause a recession – something Chairman Jay Powell recently said cannot be ruled out.
Cook said: “Although most forecasts see significant progress in inflation over the coming years, it is important to consider whether there may have been sustained changes in inflation dynamics, adding even more uncertainty to our forecasts.”