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Fed's Barkin and George Say Inflation Fight Isn't Over Despite Promising Signs -- Update

The Wall Street Journal · 01/06/2023 17:13

By WSJ Pro Staff

Inflation readings have been encouraging recently, but the Fed's fight against rising prices isn't over, the leaders of the Richmond and Kansas City Federal Reserve banks said Friday.

The U.S. central bank must remain vigilant on reducing inflation even as rising interest rates could boost the risk of recession, Richmond Fed President Tom Barkin said at a forum in Durham, N.C.

"I get a lot of questions about whether the Fed should remain this committed given that risk," Mr. Barkin said. "I guess my simple answer is that everyone hates inflation, and we are the ones mandated to address it. The Fed's objective isn't to hurt the economy; it's to reduce inflation."

At an event in Kansas City, Esther George, the president of the Kansas City Fed, said that "even as goods prices have started to decline, services prices continue to rise, boosted by a tight labor market."

"How much additional tightening will be needed to bring inflation back to 2% remains an essential aspect of the Federal Reserve's deliberations, " Ms. George, who is retiring this month, added.

Inflation has abated in recent months but remains far above the central bank's 2% target. Last month, the U.S. Labor Department said its consumer-price index was up 7.1% in November from a year earlier. That was down from a peak of 9.1% in June. In an effort to bring down inflation, the Fed last year aggressively raised its benchmark interest rate, from near zero at the start of 202 2 to 4.25% to 4.5% by year's end.

The Fed slowed its pace of monetary policy tightening late in the year, with a 0.5-percentage-point rate increase in December, following four straight 0.75-point increases.

"We moved quickly last year, but what we were doing was taking our foot off the gas," Mr. Barkin said, and now, "with our foot unequivocally on the brake, it makes sense to steer more deliberately as we work to bring inflation down."

"The experience of the '70s showed that if you back off on inflation too soon, it comes back stronger, requiring the Fed to do even more, with even more damage," he said. "If you change the target before it is achieved, as some have recently advocated, you put the Fed's credibility at risk, which in turn increases the sacrifice required in order to control inflation. And if you think supply-chain improvements and our actions to date are enough to bring inflation down quickly, then our more gradual rate path should limit the harm."

Ms. George said that the Fed's aggressive action last year "has demonstrated its commitment to restoring price stability."

"This may explain why measures of longer-run inflation expectations have remained relatively stable even as realized inflation has proven to be stubbornly high," she said.

(END) Dow Jones Newswires

January 06, 2023 17:13 ET (22:13 GMT)

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