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Fed officials mull whether rates high enough as inflation expectations jump

By Ann Saphir and Howard Schneider

NEW ORLEANS (Reuters) – The debate over whether U.S. interest rates are high enough deepened this week among Federal Reserve officials, and could intensify further after a key investigation showed an increase in consumer inflation expectations.

“There are… significant upside risks to inflation that come to mind, and I think there are also uncertainties about the extent to which policy is restrictive and whether it is sufficiently restrictive” to bring inflation back to the US central bank’s 2% target, said Lorie, president of the Dallas Fed. Logan said at a Louisiana Bankers Association conference in New Orleans.

“I think it’s just too early to be thinking about a rate cut…I think I need to see some of these uncertainties resolved about the path we’re taking, and we need to remain very flexible,” said Logan, even though she did. She does not directly specify whether she believes that the Fed may have to raise its key rate again from the range of 5.25% to 5.50% maintained since July.

During an appearance on CNBC, Minneapolis Fed President Neel Kashkari said he was in “wait-and-see mode” regarding further central bank policy and that the Fed could maintain the current rates “as long as necessary” to bring down inflation. . But he added that there was a “high” bar to conclude that higher rates were needed to curb inflation.

Many U.S. central bank officials, including Fed Chairman Jerome Powell, have said they still believe further rate hikes will prove unnecessary.

In an interview with Reuters, Atlanta Fed President Raphael Bostic said he still thinks inflation is likely to slow under current monetary policy and allow the central bank to start cutting its key rate in 2024 – but perhaps by only a quarter of a percentage point and not before the last months of the year.

“I still have that belief,” Bostic said in Thursday’s interview, although “it will take some time” to be sure that inflation will come down.

But the outlook is changing after three months in which inflation stopped improving.

Friday’s data provided another jolt in the wrong direction. Inflation expectations for the coming year, according to the University of Michigan Consumer Confidence Survey, rose to 3.5% from 3.2% in May, the highest level since November , and longer-term expectations have also increased.

While the one-month turnaround may not be significant, if it continues it would call into question the Fed’s current assessment that expectations are “anchored” – and add to the arguments being made by Logan and some others that rates may not be high enough to end the fight against inflation.

The anchored expectations are seen by Fed officials as an important sign of the central bank’s credibility and help in bringing inflation back to 2%.

“WALKING ON AN EQUIPPED ROPE”

Chicago Fed President Austan Goolsbee said in a speech at the Economic Club of Minnesota that an upward drift in inflation expectations was a “bad omen” for continued inflation. rising inflation, but that the immediate results were not worrying.

“There’s not a lot of evidence that inflation is stopping,” Goolsbee said, adding that he views current policy as “relatively restrictive.”

The University of Michigan data was released after Logan began her remarks, and she didn’t address it.

The survey also showed a fall in overall consumer confidence, a puzzling signal that could portend lower consumer spending in coming months even as households expect higher inflation.

“The Fed walks a tightrope as it balances the twin mandates of price stability and growth,” wrote Jeffrey Roach, chief economist at LPL Financial. “While not our base case, we see increasing risks of stagflation,” in which growth slows and price increases remain strong.

The Fed’s preferred measure of inflation, the Personal Consumption Expenditures Price Index, rose at an annual rate of 2.7% in March, with little progress in the first three months of the year.

In an essay published earlier this week, Kashkari also raised the possibility that rates are not restrictive enough, given the continued strength of the U.S. economy, particularly the housing market.

“It’s difficult for me to explain the persistence of robust economic activity,” Kashkari said. “This raises questions about how restrictive this policy really is.”

By contrast, San Francisco Fed President Mary Daly said in a recorded interview on Thursday that it was possible that the “neutral” interest rate for the United States had increased slightly, implying that everything given level of the benchmark policy rate would rely less on the economy. activity than it would otherwise be.

But she added that the solution for the Fed in this case would be to keep its key rate at the current level for longer.

Even though the neutral rate is higher, “we still have a restrictive policy, and that’s what we want,” Daly said. “But it may take more time to … bring down inflation.”

(Reporting by Ann Saphir in New Orleans, Howard Schneider in Washington and Michael S. Derby in New York; editing by Chizu Nomiyama and Paul Simao)

News Source : finance.yahoo.com
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Sara Adm

Aimant les mots, Sara Smith a commencé à écrire dès son plus jeune âge. En tant qu'éditeur en chef de son journal scolaire, il met en valeur ses compétences en racontant des récits impactants. Smith a ensuite étudié le journalisme à l'université Columbia, où il est diplômé en tête de sa classe. Après avoir étudié au New York Times, Sara décroche un poste de journaliste de nouvelles. Depuis dix ans, il a couvert des événements majeurs tels que les élections présidentielles et les catastrophes naturelles. Il a été acclamé pour sa capacité à créer des récits captivants qui capturent l'expérience humaine.
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