A senior Federal Reserve official has played down recent signs that the the economy is getting strongerbut also said he was prepared to continue raising interest rates in small increments as often as necessary to stifle inflation.
Richmond Federal Reserve Chairman Thomas Barkin said Friday that recent data showing a robust job gain And a surge in retail sales last month reflected in part the impact of warm weather and the government’s seasonal adjustment process, rather than an acceleration in growth that could push inflation higher.
“I’m not taking as many signals from the data that we’ve gotten recently,” Barkin said during a panel discussion with reporters. Although he added that this could change “if you start seeing him for several months”. Barkin is a member of the Fed’s 19-person interest rate setting committee.
Good employment and retail sales reports, as well as inflation figures higher than expected, have prompted several Wall Street economists to predict more interest rate hikes by the Fed this year. These increases will likely increase borrowing costs for mortgages, auto loans, credit cards and business loans.
Economists from Bank of America And Goldman Sachs both now expect the Fed to hike rates to a range of 5.25% to 5.5%, a quarter point higher than the Fed itself had forecast at its December meeting. . Its rate is currently 4.5% to 4.75%, the highest in 15 years.
Barkin’s comments follow tougher talk from other Fed officials earlier this week, such as Cleveland Fed President Loretta Mester, who has drives down stock and bond prices as investors increasingly expect further rate hikes.
In his remarks, Barkin also warned that measures of underlying inflation remain elevated and may require further rate increases. He said he was comfortable with raising rates a quarter point at a time, rather than reverting to the larger increases of half a point or more that the Fed implemented. Last year.
“I like the (quarter-point) trajectory because I think it gives us the flexibility to react to the economy as it comes up,” he said. “And that means I’m comfortable raising rates potentially more often at a higher level.”
On Thursday, Mester said she had seen a “compelling” case for raising the Fed’s benchmark rate by half a point at its Feb. 1 meeting, the same increase it implemented in December. . Instead, the Fed implemented a quarter-point hike.
Inflation accelerated from December to January, and core prices excluding food and energy also rose faster than economists expected. Overall, prices were 6.4% higher last month from a year ago, just below December’s reading of 6.5%.
“It’s good news to see some moderation in inflation readings since last summer, but the level of inflation is significant and it’s still too high,” Mester said. Last month’s report showed “no improvement in core inflation”.
St. Louis Fed President James Bullard also said Thursday that he would have preferred a half-point hike on Feb. 1, according to news reports. He said he wanted to move the Fed rate into a range of 5.25% to 5.5% as quickly as possible.
Barkin, however, said he was not in favor of rapidly increasing rates to a specific point and then pausing. He said there was too much uncertainty about the future path of the economy and what impact Fed rate hikes will have and when to take that approach. Instead, he favors the quarter-point hikes needed to bring inflation down.
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