WASHINGTON: A slowdown of economic growth and the US job market will be “required” to bring down inflation, the Federal Reserve (Fed) said in notes released on Wednesday (Oct 12), adding that prices remain “unacceptably high”.
Fed officials also said inflation has “not yet responded” to increased interest rates, according to minutes of the US central bank’s September meeting, and that “a significant reduction in inflation would likely lag that of aggregate demand”.
In September, the Fed’s policy-setting Federal Open Market Committee (FOMC) increased the key interest rate by 0.75 percentage point for the third consecutive time, continuing its forceful action to tamp down inflation, which has surged to the highest level in 40 years.
On Tuesday, US President Joe Biden admitted there was a chance the country could suffer a “slight” recession, when asked about fears for the economy amid gloomy growth projections.
But some of the Fed officials cited in the minutes also noted that “it would be important to calibrate the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook”.
Several of the officials added that “the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action”.
Participants also noted their strong “commitment to returning inflation to the committee’s two percent objective”.
The Fed’s preferred inflation measure, the personal consumption expenditures price index, showed the annual pace of price increases slowed slightly in August.
Another measure of price increases, the consumer price index, will be published today (Oct 13) for the month of September.
Separately, Federal Reserve governor Michelle Bowman said that if high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures.
“Inflation is much too high, and I strongly believe that bringing inflation back to our target is a necessary condition for meeting the goals mandated by Congress of price stability and maximum employment on a sustainable basis,” Bowman said in the text of a speech to be delivered before a gathering in New York City.
The policy maker said Fed rate rises this year, which have been very large relative to the pace of past rate rise campaigns, had her full support.
What happens with inflation will determine what is next for the Fed, Bowman said. “If we do not see signs that inflation is moving down, my view continues to be that sizeable increases in the target range for the federal funds rate should remain on the table,” she said.
But if inflation starts to cool, “I believe a slower pace of rate increases would be appropriate,” Bowman said.
She also noted she does not see any rate cuts ahead for now. “To bring inflation down in a consistent and lasting way, the federal funds rate will need to move up to a restrictive level and remain there for some time,” Bowman said.
The central banker said it was “not yet clear” how far the Fed will need to increase the cost of short-term credit and how long it will need to maintain a restrictive policy stance.
Bowman also said in her remarks that while the Fed has had success in the past giving guidance about the outlook for monetary policy, the current period is uncertain enough to limit the power of that tool.
“Under current circumstances, however, the best we can do on the public communications front is, first, to continue to stress our unwavering resolve to do what is needed to restore price stability,” Bowman said. – AFP