Fed: Rates should hold until inflation eases
Federal Reserve Vice Chair Philip Jefferson said it’s appropriate to keep interest rates steady until there is additional evidence that inflation will return to the central bank’s 2% target.
Mr. Jefferson, who described Fed policy as restrictive, said he finds the lack of inflation progress in the first quarter concerning.
“In light of the attenuation in progress, in terms of getting inflation down to our target, it is appropriate that we maintain the policy rate in restrictive territory, which it is right now,” he said at a Cleveland Fed event Monday. “We continue to look for additional evidence that inflation is going to return to our 2% target. And until we have that, I think it is appropriate to keep the policy rate in restrictive territory.”
Policymakers left the benchmark interest rate unchanged at a 23-year high earlier this month. Fed Chair Jerome Powell did not comment on the timing of when the central bank will lower borrowing costs.
Mr. Jefferson’s remarks on policy followed a speech in which he said communication from officials with diverging views can lead to confusion about the course of policy among the public.
“The diversity of viewpoints among policymakers lends itself to stimulating debates and, ultimately, better policy,” Mr. Jefferson said. “But in such a situation, more communication could increase rather than reduce uncertainty about our policies.”
Fed communication policy is emerging as a relevant topic for the central bank’s strategy review, given the volatility created by abrupt shifts in officials’ rate outlook in recent months. The details of what the review will cover,
which begins at the end of this year, have not been announced.
While some officials are seeking new forms of telling the policy story, Mr. Jefferson raised concerns about the cacophony of individual speakers.
“The potential for misinterpretation is especially acute when many policymakers speak at the same time and disagree with each other,” he said.
Fed officials have been discussing alternative communication options after the May meeting. Their Summary of Economic Projections — a compendium of 19 different forecasts — isn’t a baseline outlook though markets often interpret it that way.
Mr. Jefferson emphasized this as well, noting the quarterly projections represent policymakers’ viewpoints at a point in time.
He said he wouldn’t want the public to hold him accountable to a particular forecast or series or forecasts “because it could be the case that since I described my thinking at that point of time, the information and data has come in quite differently.”
Chicago Fed President Austan Goolsbee said earlier this month that the SEP “isn’t that helpful” in communicating a policymaker’s sense of how they would respond to incoming data.
Mr. Goolsbee, however, has embraced the communication of policymakers’ divergent views.
“Having folks with different worldviews makes for better decision-making,” he said. “There’s nothing wrong with the public knowing these views. It’s reality.”