One of the latest additions to the Federal Reserve’s board of governors is joining other top officials in curbing speculation that the US central bank will soon suspend its campaign to tighten monetary policy, focusing instead on the likely need for “continuous rate hikes”.
In her first public comments since she became governor, Lisa Cook described inflation as a “short- and long-term threat” and said it was “critical” for the Federal Reserve to “prevent inflationary psychology from gaining a foothold in the economy.” landed”.
“In our current economy, with a very strong labor market and inflation well above our target, I believe a risk management approach requires a strong focus on taming inflation,” she said at an event hosted by the Peterson Institute for International Economics, a De Washington-based think tank.
“Apart from the immediate effect of higher prices on households and businesses, the longer it lasts and the more people come to expect it, the greater the risk of high inflation entrenching.”
Her comments come as financial markets have been whipping around both the bleak growth prospects globally and the emerging signs of stress. Some investors and economists have speculated that as a result, the Fed will have to pull back from its monetary tightening plans and either trade much more slowly in the coming months or pause altogether.
The Fed is debating whether or not to make a fourth consecutive rate hike at its upcoming meeting in November, in a move that would raise federal funds rates from 3.75 to 4 percent. Most officials predict that the key interest rate will reach 4.4 percent by the end of the year and 4.6 percent by early 2023.
While November’s decision will largely be based on incoming jobs data, due on Friday, and the next inflation report to be released next week, Fed officials have explicitly warned that economic conditions do not yet warrant the central bank’s reversal of its ultra-aggressive approach. .
Minneapolis Fed president Neel Kashkari also said on Thursday the Fed is “a long way from stopping the rate hike” — a message also echoed this week by Atlanta Fed’s Raphael Bostic and Mary Daly of San Francisco’s central bank branch.
Cook, the first black woman to serve as Fed governor, on Thursday backed the central bank’s decision to “preload” its rate hikes, which she says has helped accelerate demand decline. Restoring price stability would likely require not only “continued rate hikes,” she continued, but also keeping interest rates at levels that will hold the economy in check “for some time.”
During a discussion following her comments, Cook was asked about liquidity in the US Treasury bond market, which traders have warned is under pressure. The Treasury market, she said, is “functioning well” with “large amounts of trades being executed.”
While Cook emphasized that the economic effects caused by changes in monetary policy operate with “long and variable delays,” she said any policy adjustments should depend on “whether and when we actually see inflation falling in the data, rather than only in forecasts”.
At a separate event on Thursday, Chicago Fed president Charles Evans said the “momentum” in core inflation, which excludes volatile items like food and energy, is of most concern to the Fed.
Economists have warned that waiting for realized inflation to fall would almost certainly lead to the Fed tightening too much and triggering a recession – something Chairman Jay Powell said recently cannot be ruled out.
“While most forecasts show significant progress on inflation in the coming years, it’s important to consider whether inflation dynamics have changed in a lasting way, making our forecasts even more uncertain,” Cook said.