Despite a year of aggressive rate hikes, US central bankers “have not made much progress” in getting inflation back to the 2% target and need to hike interest rates further, the Federal Chief Executive said on Friday. Reserve Christopher Waller.
Key measures of underlying inflation “have essentially drifted sideways with no apparent downward movement,” Waller said in comments following the Fed’s push to downplay the immediate economic risks posed by recent bank failures.
While Waller said it was not yet clear whether banking stress would lead to an unexpected tightening of lending and credit and slow the economy more than necessary, he said the apparent stability in financial markets showed the Fed was right to raise rates at its last meeting and keep monetary policy focused on fighting inflation.
“Monetary policy needs to be tightened. How much more will depend on inflation data, the real economy and the extent of the tightening of credit conditions,” Waller said in remarks prepared for delivery at the Graybar National Training Conference in San Francisco. , Texas.
STABLE BANKING SYSTEM
Since the failure of Silicon Valley Bank on March 10, the Fed has been studying the financial and credit markets to see if contagion is happening.
Waller said the emergency measures taken since then “appear to have been successful in providing stability to the banking system,” a conclusion that appears to be widely shared by US central bankers.
The scenario left the Fed free to define monetary policy based on the performance of the economy and inflation, with a further increase of 0.25 percentage points in the base interest rate from 2 to 3 May. This would raise the rate to a range of 5.00% to 5.25%.
So far, Waller said, he sees both the economy and inflation remaining stronger than he expected.
“Economic output and employment continue to grow at a solid pace, while inflation remains very high,” Waller said, noting that investors shouldn’t expect rates to fall any time soon.
“Monetary policy will need to remain tight for a considerable period of time and longer than markets expect,” he said.
Source: Terra
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