WASHINGTON, March 2 (Reuters) – U.S. Federal Reserve officials on Thursday wrestled with whether the latest data showing higher-than-expected inflation, jobs and spending was a “flip” or a sign that higher interest rates may be needed to curb inflation.
The separate remarks by Fed Governor Christopher Waller and Atlanta Fed President Rafael Bostic posed a question central to the central bank’s next phase of its battle to reduce inflation: Is monetary policy slipping back behind the curve of a surprisingly strong economy that will require even tighter credit conditions, or whether slower growth and lower inflation are already on the way? ?
So far, even hawkish voices like Waller say the jury is out, and jobs and inflation data released between now and the Fed’s upcoming March 21-22 meeting could tip him and perhaps other policymakers toward higher interest rates.
“We received a flurry of data last month that challenged my view … that the Federal Open Market Committee is making progress in moderating economic activity and reducing inflation,” Waller told the Association of Midsized Banks of America on Thursday. An organization of about 100 financial institutions with assets between $10 billion and $100 billion.
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“It could be that progress has stalled, or the numbers released last month could be a blip,” he said.
Waller said the target federal funds rate would rise to roughly the same spot policymakers projected in December, when 13 of 19 officials saw rates relaxing somewhere from 5.1% if upcoming data shows the economy is moderating and inflation is slowing. 5.4%
The current policy rate is set in the range of 4.5% to 4.75%.
“On the other hand, if those data reports continue to come in very hot, we may need to raise the policy target range even further this year so we don’t lose the momentum we had in place,” Waller said.
Bostick said he was prepared to raise rates if the upcoming data did not “clearly” show inflation moving back toward the central bank’s 2% target from its January level of 5.4%.
But he felt the impact of the central bank’s interest rate hikes had only just begun, and one reason to be cautious in deciding on rate hikes is that the central bank is overreaching.
“Slow and steady would be the right course of action,” Bostick told reporters in comments, adding that perhaps only two more quarter points are needed before the Fed pauses.
Fed rate hikes “should bite in the spring … moving at a measured pace makes it less likely we’ll shoot higher” and damage the economy.
Report by Howard Schneider; Editing by Nick Zieminski and Stephen Coates
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