Inflation, as measured by the consumer price index, has fallen from about 9% last year to about 3.7% last measured, slowed at least in part by 5.25 percentage point increases in interest rates. the Fed in the last 18 months.
The Federal Reserve’s goal is 2% inflation.
In light of these developments, U.S. central bankers last month opted to keep the policy rate at the current range of 5.25%-5.50%, even as most noted that another rate hike would likely be necessary before the end of this year. anus.
In a speech Monday at another event in New York, Federal Reserve Vice Chairman of Supervision Michael Barr said he believes rates are now “at or very close” to a sufficiently restrictive level.
“In my view, the most important question right now is not whether or not a further rate hike is necessary this year, but rather how long we will need to keep rates at a sufficiently restrictive level to achieve our objectives,” Barr said in the Forecasters Club of New York. “I hope it takes some time.”
Fed Chairman Jerome Powell, who visited York on Monday to get a closer look at how businesses and workers are experiencing the economy, also said last month that restrictive policy would be necessary “for some time,” as did the influential New York Fed chief John Williams last Friday.
But neither they, nor Bowman or Barr, said how long they thought “some time” might be.
The Fed’s forecasts published last month show some divergence: although overall they expect fewer rate cuts next year than were expected in June, only a slim majority believes that rates will end 2024 above 5%, and 9 of the 19 responsible expect them to be lower.
The same Fed forecasts also show that policymakers as a whole expect stronger economic growth and a stronger labor market than three months ago, but they have also made small adjustments to their inflation forecasts.
“The only way to square these forecasts would be to follow a path of slightly higher rates for longer,” Richmond Fed President Thomas Barkin said in an interview on Bloomberg’s “Odd Lots” podcast last Thursday. but issued on Monday.
“I think there’s a case to be made that the U.S. economy is much more resilient than we thought, resilient to interest rate hikes, resilient to all the shocks we’ve talked about,” he added.
Still, he said, “one of the things I liked about our position coming out of the last meeting is that, with demand relatively strong by all indications, the labor market still relatively strong and inflation cooling, we have the latitude to say, let’s see how this develops.