Inflation fight may last ‘quite a bit of time,’ Jerome Powell says

Federal Reserve Chair Jerome Powell said on Tuesday that the latest jobs report showed the process of bringing inflation back closer to the central bank’s 2% target would take “considerable time”, although indications were that costs The pressure is easing, at least for goods.

Powell said during a question-and-answer session at the Economic Club of Washington that the nonfarm payrolls report for January, which was published Friday, was “certainly stronger than I expected.”

“We didn’t expect it to be this strong, but it shows why we think it will be a process that will take a long time,” Powell said.

At the same time, Powell declined to equate the surprising strength in the labor market shown in the January jobs report with expectations that interest rates will need to be higher than Fed officials estimated late last year.

In December, the average estimate among members of the Federal Open Market Committee was for the Fed’s policy rate to climb just above 5% this year, a level that financial markets had been reluctant to buy until last Friday’s jobs report.

Federal Reserve Chair Jerome Powell said the central bank has some way to go to raise rates.

Powell’s remarks give some indication of how he and other policymakers are beginning to assess an unexpectedly strong jobs market that they had expected to weaken as the Fed’s rate hikes continued. has slowed down the economy to take out the inflationary air. He was not the first to express surprise at the level of job creation in January.

“I think it surprised all of us,” Minneapolis Fed President Neil Kashkari said in an interview that aired on CNBC early Tuesday, referring to last Friday’s blowout jobs report. The government reported more than half a million job gains for January. .

The figures were more than a weak labor market that the Fed had expected and felt would be needed to ensure that wage growth also slowed and inflation, which is below the central bank’s target. Running more than double, keep falling.

Neil Kashkari, president of the Minneapolis Federal Reserve
Minneapolis Federal Reserve President Neil Kashkari said a month ago that he expects the central bank’s policy rate to rise to 5.4 percent.
Ivan Agostini/Invasion/AP

Kashkari, who is more aggressive than almost all his peers in assessing how high interest rates need to go, said a month ago that he expected the central bank’s policy rate to rise to 5.4 percent. was predicted. The jobs report reinforced this view.

“That tells me that so far, we’re not seeing much of an impact on the labor market,” Kashkari said. “It’s been pretty quiet so far, so I haven’t seen anything to lower my rate yet.”

Since Friday, Kashkari and a handful of other Fed officials have signaled openness to raising overnight benchmark interest rates above the 5.00%-5.25% range forecast by Fed policymakers in December. Is.

After last week’s policy meeting, when the Fed raised its policy rate by a quarter of a percentage point to a range of 4.50%-4.75%, Powell continued to welcome signs of emerging “disinflation”. Bar quotes gave investors the impression that he might. Open to a short stop on the December rate forecast.

Friday’s data, highlighted by an upside surprise on job creation and a drop in the unemployment rate to its lowest level since 1969, prompted a sudden reassessment in financial markets. Bond yields have risen and interest rate futures markets now square the federal funds rate to at least 5.1%.

Labor market concerns

On Monday, Atlanta Fed President Rafael Bostic was among those who said the central bank may need to raise borrowing costs more than previously expected given the job gains. He noted that while a half percentage point rate hike was not his top priority for the next policy meeting in March, it could be considered.

“It will probably mean we have to do a little more work,” Bostic told Bloomberg News. “And I would expect that to translate to higher interest rates for us than what I just anticipated.” Bostick had previously forecast that the federal funds rate would rise to a range of 5%-5.25%, similar to nearly all of its peers.

Atlanta Fed President Rafael Bostick
Atlanta Fed President Rafael Bostic earlier predicted the federal funds rate would top out in the 5%-5.25% range, like nearly all of his peers.

In his interview, Kashkari also pointed to other concerns that have arisen from such a strong labor market, including a very strong services sector and rapid wage growth that has been inconsistent with the Fed’s inflation target. At a time when the central bank’s rate hike, the fastest in 40 years, is expected to dampen demand from the economy.

“It’s hard to imagine that you’re going to see very strong job growth while wage growth is moderate and that’s what I’m looking for,” Kashkari said. “We’ve seen no progress so far, virtually no progress in basic services ex-housing, and it’s very tied to the labor market.”

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