Two Federal Reserve governors consider keeping interest rates higher for an extended period due to sluggish inflation

Federal Reserve governors, Philip Jefferson and Michael Barr, reiterated their stance on holding rates at current levels until there is more evidence of falling inflation. The two officials highlighted disappointing inflation in the first quarter as a reason for maintaining the status quo, allowing more time for restrictive policy to take effect.

Speaking at an Atlanta Fed conference in Florida, Barr stated, “I think we are in a good position to hold steady and closely watch how conditions evolve.” Jefferson echoed this sentiment, noting that while April’s Consumer Price Index showed some improvement, it was not enough to warrant a rate adjustment.

The Fed’s preferred measure of inflation, the “core” Personal Consumption Expenditures index, remains elevated, with prices estimated to have risen 4.1% over the first four months of the year. This is well above the Fed’s target of 2%, indicating that inflation is still a concern for policymakers.

Jefferson also highlighted the impact of high interest rates on consumer spending, predicting a slowdown later in the year. He emphasized the need for inflation to decline at a faster pace to bring the economy into better balance.

Fed Chair Jerome Powell recently indicated that the central bank will need more than a quarter’s worth of data to assess the trajectory of inflation. This suggests that any rate adjustments will be based on sustained trends rather than short-term fluctuations.

Overall, the Fed’s cautious approach to monetary policy reflects ongoing concerns about inflation and its impact on the economy. Investors are closely watching for any signs of a shift in the central bank’s stance, with the possibility of a rate cut in September depending on future economic data.