Despite Cooling Inflation, Fed Officials Split on Need for More Rate Hikes
Key Takeaways
- In a series of interviews and speeches, Federal Reserve officials presented different views of whether rates had been raised high enough.
- Chicago Fed President Austan Goolsbee said the economy was making sufficient progress on inflation, while Fed Governor Michelle Bowman said she believes additional rate hikes may be needed to bring inflation down further.
- Minneapolis Fed President Neel Kashkari said the Federal Reserve’s fight against inflation was “not done yet,” while Fed Governor Christopher J. Waller noted that the job market was “calming down.”
The campaign of interest rate hikes by the Federal Reserve has been successful at reducing inflation, several Fed officials agreed on Tuesday, but these speakers began to diverge on whether rates had reached their peak.
As Chicago Federal Reserve President Austan Goolsbee indicated that the Fed’s rate hikes have so far put the economy on what is perhaps a “golden path” to reducing inflation back to its 2% goal, Fed Governor Michelle W. Bowman said she didn’t believe rates have reached their peak.
In an interview on CNBC, Goolsbee said he wouldn’t forecast Fed action because inflation has significantly cooled. In fact, Goolsbee said inflation could be on the same path as it was in 1982 when prices of goods and services dropped about 4% on the back of aggressive interest rate hikes similar to the Fed’s actions over the past year.
“We might equal the fastest dropping inflation in the last century. So we’re making progress on the inflation rate,” he said.
As long as inflation is dropping, Fed officials will likely be debating how long to leave rates where they are, not whether to raise them again, he said.
But while the 1982 inflation fight produced a recession, Goolsbee said there is a “golden path” where the Fed rate hikes can bring down inflation to the 2% goal, while keeping unemployment in check, delivering the so-called “soft landing” that avoids a recession.
The comments from Federal Reserve officials come after the Federal Open Market Committee voted last week to keep the federal funds rate at its current level of 5.25% to 5.5%.
Kashkari, Bowman Hint More Hikes May Be Needed
In an appearance on Bloomberg TV, Minneapolis Fed President Neel Kashkari said while inflation has declined, strength in the economy and the labor market showed that it was still too early to lower rates.
“When activity continues to run this hot, that makes me question, is policy as tight as we assume it is?” Kashkari said. “We’re not done yet, meaning inflation is not back to our target, and if we need to do more, we will.”
His comments reflected sentiments from Bowman, who said at an Ohio Bankers League event that recent inflation data has been “uneven” and there was too much uncertainty over the economy to think that the inflation fight is finished.
“I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way, “ Bowman said.
And while Fed Governor Christopher J. Waller didn’t focus on federal monetary policy during remarks at the Federal Reserve Bank of St. Louis, he did say that the labor market was “calming down,” a sign that inflation may be coming under control too.
“We’re seeing the labor market getting into better balance between supply and demand,” Waller said.