Fed’s Barr: Rates may be held at restrictive level for some time

The Federal Reserve must “proceed carefully” as it considers making monetary policy more restrictive to rein in inflation, with the question not being whether further rate hikes are needed this year, but how long it will need to hold rates at a sufficiently restrictive level to achieve its goals, Fed Vice Chairman of Supervision Michael Barr said today during a speech in New York City.

The Federal Open Markets Committee voted to hold the target range for the federal funds rate at 5.25% to 5.5% when committee members last met in September. Barr said that he expects the full effects of the FOMC’s past monetary policy tightening to take months to play out. His baseline projection is for real GDP growth to moderate somewhat over the next year as restrictive monetary policy and tighter financial conditions restrain economic activity, with some further softening in the labor market.

As far as how long the Fed will need to maintain a restrictive policy stance to return inflation to its target 2% range, “I expect it will take some time,” Barr said. “I will continue to evaluate a range of incoming data as I make my assessments at upcoming meetings.”