January data shows path to 2% inflation will be “bumpy”

By Howard Schneider

WASHINGTON, Feb 14 (Reuters) – Hotter-than-expected inflation in January shows that the U.S.’s path back to 2% inflation “may be a bumpy one,” Fed Vice Chair for Supervision Michael Barr said on Wednesday.

The Fed is “confident we are on a path to 2% inflation,” Barr said in remarks prepared for delivery at a National Association for Business Economics conference, “but January’s report…is a reminder that the path back to 2% inflation may be a bumpy one.”

Consumer prices rose at a yearly 3.1% rate in January, with an underlying measure of core inflation measuring 3.9%, the same as the month before, with rising shelter prices driving the increase.

“We need to see continued good data before we can begin the process of reducing the federal funds rate,” Barr said, adding he backed the “careful approach” to cutting rates advocated by Chair Jerome Powell and other Fed policymakers.

The Fed held rates steady at its last meeting in a range between 5.25% and 5.5%, with rate cuts expected to begin some time after an upcoming meeting in March.

Barr, who oversees the Fed’s supervision and regulation of banks, said that unlike a year ago, when several high-profile bank failures led to fears they might lead to a severe credit crunch, “the banking system remains sound and resilient, and it is in much better shape than it was last spring.”

Citing concerns that similar market tensions might follow recent troubles at the New York Community Bancorp, Barr said, “a single bank missing its revenue expectations and increasing its provisioning does not change the fact that the overall banking system is strong.”

“We see no signs of liquidity problems across the system,” Barr said.

Regarding the Fed’s balance sheet, Barr said the Fed was monitoring markets carefully as it continues to draw down its asset holdings, to be sure that banks can continue to easily access reserves.

Detailed talks about the future of the balance sheet would commence “soon,” Barr said. (Reporting by Howard Schneider; Editing by Andrea Ricci)

Source link


Leave a Reply

Your email address will not be published. Required fields are marked *

We use cookies to give you the best experience. Cookie Policy