The American Central Bank (Fed) is determined to continue to raise its rates and maintain a restrictive monetary policy until inflation experiences a lasting slowdown, said Thursday two governors of the powerful institution.
Restoring price stability will likely require continued rate hikes and then maintaining tight policy for some time until we are confident that inflation is firmly on track to our 2% target, said Lisa Cook, who was giving her first speech since taking office in May.
Inflation is too high, it needs to come down, and we will continue until the job is done, she added, during this speech at the Peterson Institute of International Economics (PIIE), Washington .
Inflation slowed to 6.2% in August over one year, according to the PCE index, favored by the Fed. Over one month, however, prices started to rise again, by 0.3%, over one month, after falling 0.1% in July.
The Fed is targeting 2% annual inflation. To achieve this objective, it has been gradually raising its main key rate since March in order to slow the economy.
But there is still much to be done to reduce inflation significantly and sustainably. I expect further rate hikes early next year, also anticipates another governor, Christopher Waller, who also expects serious discussions on the pace of tightening at our next meeting on November 1-2.
Monetary policy can and should be used aggressively to bring inflation down, he argued, in a speech at the University of Kentucky.
Foundations of a strong labor market
The Fed’s key rate, which was in the 0.00 to 0.25% range until March, is now between 3.00 and 3.25%. Faced with the persistence of high inflation, the Federal Reserve resorted to hikes much faster than usual, by half a percentage point and even three-quarters of a point, instead of the usual quarter point.
Until progress on the inflation front is both significant and persistent, I will support continued rate hikes, added Christopher Waller.
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I’ve recently read speculation that financial stability issues could eventually lead the FOMC to slow rate hikes or end them earlier than expected. Let me make it clear that this is not something I envision nor do I see as a likely development, he warned.
Policy must remain focused on restoring price stability, which will also lay the foundations for a strong and sustainable labor market, warned Lisa Cook.
The unemployment rate for September will be published on Friday. It is expected stable, 3.7%.
Lisa Cook is the first black woman to hold a governorship in the US Federal Reserve.
Former economic adviser to President Barack Obama at the White House, she took office on 23 May.