Fed: the fight against inflation could last

Fed officials believe inflation may persist longer than previously thought after the central banks’ benchmark jumped the most in months.

Governor Philip Jefferson and Cleveland Fed President Loretta Meister said they still worry about high inflation, which is higher than the Fed’s target of two percent.

Meister reiterated that although inflation is moderate, the overall level remains too high. She pointed to recent Cleveland Fed research and a discussion paper suggesting inflation could be more persistent than expected.

Meister said that the risks to the inflation forecast are higher, and that high inflation is costly. She stated that the costs of under-advancing the policy or loosening it too soon still outweigh the costs of overreaching.

The comments came after the Fed’s preferred measure of inflation — the personal consumption expenditures (PCE) index — rose unexpectedly in January after rising 5.4 percent yearly last month. Excluding volatile energy and food prices, the inflation rate rose 4.7 percent, marking an increase after several months of decline.

Every month, the PCE index increased by 0.6 percent in January compared to December. In January, core prices increased by 0.6 percent compared to the prior month, a greater increase than the 0.4 percent bump seen in December.

Meister, who will not be involved in monetary policy decisions this year, stated in a Bloomberg interview that recent inflation data suggests the Fed should further raise rates, although not by a margin of 50 bps at the impending meeting.

Raising interest rates

Meister said last week that she wanted to raise the benchmark interest rate by 50 basis points at the last policy meeting to get to the top rate faster, although she did not want to surprise markets.

In a separate interview, Meister signaled that her December forecast of a rate hike just above five percent had mostly stayed the same.

At the Monetary Policy Forum, Susan Collins, President of the Boston Federal Reserve, noted that inflation is still above the desirable rate, and the Central Bank must do additional work to bring it down.