The Fed is grappling with whether the latest data is a “blip” or a warning about inflation

WASHINGTON (Reuters) – Federal Reserve officials grappled on Thursday over whether recent data showing hotter-than-expected inflation, jobs and spending was a “snapshot” or a sign that higher interest rates may be needed to slow rising prices.

Separate comments from Fed Governor Christopher Waller and Atlanta Fed President Raphael Bostick raise a pivotal question in the next phase of the Fed’s battle to cut inflation: Is monetary policy slipping back under the curve of a surprisingly strong economy that needs tighter credit conditions? Or is slower growth and lower inflation already on their way?

For now, even hawkish voices like Waller say the jury is out, with jobs and inflation data released between now and the next Fed meeting on March 21-22 likely to be key to whether he and perhaps other policymakers lean toward rates. higher benefit.

“In the past month we have received a barrage of data that challenged my view … that the FOMC is making progress in adjusting economic activity and lowering inflation,” Waller said in comments Thursday to the Mid-Size Bank of America Coalition. It is an organization of about 100 financial institutions with assets ranging from $10 billion to $100 billion.

“It is possible that progress has stalled, or it is possible that the numbers released last month are just a blip,” he said.

If upcoming data shows the economy is moderate and inflation is slowing, Waller said he would “certify” that the target federal funds rate would rise to the same spot rate policymakers expected from December, when 13 of 19 officials saw rates rising somewhere from 5.1% to 5.4%.

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

“On the other hand, if these data reports continue to come out very high, the policy target range this year will need to be raised even further to ensure that the momentum that has been there is not lost,” Waller said.

Bostick also said he is ready to raise interest rates if upcoming data does not show that inflation is heading “clearly” towards the central bank’s target of 2% from its January level of around 5.4%.

But he also felt that the impact of the Fed’s interest rate increases so far may be only beginning, which is a reason to be careful in deciding whether to raise interest rates so as not to override the central bank.

“Slow and steady would be the appropriate course of action,” Bostick said in remarks to reporters, and may need to be increased by just a quarter point before the Fed can pause.

Fed rate increases “should bite through the spring… Going at a measured pace makes it less likely that we will overtake” and hurt the economy.

(Reporting by Howard Schneider). Editing by Nick Zieminski and Stephen Coates

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