Fed questions whether recent data is a ‘weak spot’ or an inflation warning

WASHINGTON, March 2 (Reuters) – U.S. Federal Reserve officials questioned on Thursday whether recent data showing higher-than-expected inflation, jobs and spending was a “theater twist” or a sign that even higher interest rates might be needed to slow the rise in prices.

Separate comments from Fed Governor Christopher Waller and Atlanta Fed Chairman Raphael Bostic posed a central question for the next phase of the Fed’s battle to curb inflation: Monetary policy is slipping Is it again behind the curve of a surprisingly strong economy that needs even tighter credit conditions, or is slowing growth and falling inflation already underway?

So far, even hawkish voices like Waller say the jury is out, with jobs and inflation data released by the Fed’s next March 21-22 meeting, likely key to knowing whether he and perhaps other policymakers are tilting towards higher interest rates.

“Last month, we received a deluge of data that challenged my view … that the Federal Open Market Committee was making progress in moderating economic activity and reducing inflation,” said Waller said in comments Thursday to the Mid-size Bank Coalition of America, an organization of about 100 financial institutions with assets between $10 billion and $100 billion.

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“Progress may have stalled, or it may be that the numbers released last month were a mistake,” he said.

If upcoming data shows the economy moderating and inflation slowing, Waller said he would “approve” raising the target federal funds rate to roughly the same spot policymakers had expected in December, when 13 of 19 officials saw rates stall somewhere in the 5.1% to 5.4% range.

The current policy rate is set within a range between 4.5% and 4.75%.

“On the other hand, if these data reports continue to be too hot, the policy target range will need to be even higher this year to ensure we don’t lose the momentum that was in place,” said Waller.

Bostic also said he was ready to raise rates if the upcoming data did not “clearly” show inflation returning to the central bank’s 2% target from its January level of around 5.4%.

But he also opined that the impact of the Fed’s rate hikes so far may be just beginning, a reason to be cautious in deciding on further rate hikes lest the central bank overshoot. limits.

“Slow and steady will be the appropriate course of action,” Bostic said in comments to reporters, with perhaps just two more quarter-point increases before the Fed can pause.

Fed rate hikes “should bite into the spring… Going at a measured pace reduces the likelihood that we will overshoot” and hurt the economy.

Reporting by Howard Schneider; Editing by Nick Zieminski and Stephen Coates

Our standards: The Thomson Reuters Trust Principles.

howard schneider

Thomson Reuters

Covers the US Federal Reserve, monetary policy and economics, graduated from the University of Maryland and Johns Hopkins University with previous experience as a foreign correspondent, business reporter and local Washington Post staffer.

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