Two US Federal Reserve officials on Saturday emphasized that the US central bank must finish off its fight against the post-COVID-19 pandemic price surge and reach its 2 percent inflation target.
Despite significant progress in lowering price pressures over the past two years, inflation remains “uncomfortably above our target,” San Francisco Fed President Mary Daly said during a panel discussion.
Fed Governor Adriana Kugler echoed that sentiment at the event hosted by the American Economic Association in San Francisco.
“Obviously our job is not done,” she said. “We’re not at 2 percent yet, so we’re definitely aiming still to get there, and we know the job is not done.”
Officials have lowered interest rates by a full percentage point since September last year. However, in the wake of a stall in inflation’s downward progress, they signaled last month they would take a more cautious approach this year. Fed policymakers are widely expected to hold borrowing costs steady when they meet later this month.
Fed Chair Jerome Powell has indicated further reductions would require renewed progress on reaching the central bank’s 2 percent inflation goal. The Fed’s preferred inflation gauge was up 2.4 percent in November from a year earlier.
While sounding determined regarding inflation, Daly and Kugler also said the Fed must remain watchful over the state of the labor market. Daly suggested officials might soon face more of a trade-off between the central bank’s two goals.
So far, the Fed’s attempt to quash inflation has not significantly damaged the labor market. Unemployment has ticked up, but was a historically low 4.2 percent in November.
“I would not want to see further slowing in the labor market,” Daly said. That, she added, could upset the rough balance she now sees in the employment landscape. “So while we do absolutely have to continue to get inflation down to our 2 percent target — we have to be resolute about that — we have to do it in a thoughtful manner so that we can also support the full employment” goal.
Kugler reiterated that she’d like to make sure the recent “bump” in inflation data didn’t prove persistent.
“We suspect that it could be a bump,” she said.
