While inflation has come down substantially since last summer, it is still too high, and by some measures progress has been slowing, Federal Reserve Governor Philip Jefferson said today during an insurance conference in Washington, D.C. Jefferson—who was recently nominated for Fed vice chairman by President Biden—noted that price increases in food and energy have fallen substantially in recent months. However, core inflation was 4.6% in March, with inflation in housing and nonhousing services showing few signs of decline.
The Federal Open Market Committee will meet again in June to consider the possibility of again raising the federal funds rate. Jefferson said members will receive a “considerable amount” of economic data between now and then to guide their decision. “On the one hand, inflation is too high, and we have not yet made sufficient progress on reducing it,” he said. “On the other hand, GDP has slowed considerably this year, and even though the effect has been muted in the labor market so far, demand clearly has begun to feel the effects of interest rates that are five percentage points higher than they were a little over a year ago. History shows that monetary policy works with long and variable lags, and that a year is not a long enough period for demand to feel the full effect of higher interest rates.”
Jefferson also stressed that despite recent bank failures, the U.S. banking sector remains sound and resilient. Still, he said it is reasonable to expect some banks to tighten their credit standards. “The evidence is that so far there has been only a modest incremental tightening of lending conditions, which had already tightened considerably over the past year since the Federal Reserve began raising interest rates,” he said.