WASHINGTON: The US remains on track to hit its long-term target of two percent inflation despite a recent “bump” in the road, a senior Federal Reserve official said Monday.
The US central bank has been on a journey since the Covid-19 pandemic, hiking interest rates to a two-decade high and holding them there in order to tame a surge in inflation, before starting to dial back rates in recent months.
On paper, the US economy now looks pretty healthy – with robust economic growth, an unemployment rate still relatively close to historic lows, and inflation at 2.3 percent in October, according to the Fed’s favored measure.
But as close as inflation is to two percent, it has so far failed to hit that target, held high by several factors including the cost of housing and accommodation, and actually ticked up slightly in October.
Fed cuts rates by half a percentage point, cites ‘greater confidence’ about inflation
In an essay published Monday, Atlanta Fed President Raphael Bostic said the Fed remained on track.
“I believe inflation remains on a path, albeit a bumpy one, toward the Committee’s objective of 2 percent,” said Bostic, who is a voting member this year on the Fed’s rate-setting committee.
“I do not view the recent bumpiness as a sign that progress toward price stability has completely stalled,” he said.
Financial markets see a roughly 63 percent chance that the Fed will move ahead with an additional quarter-point interest rate cut later this month, and a probability of around 35 percent that it will pause, according to data from CME Group.
If the Fed does move ahead with a cut, its benchmark lending rate will fall to between 4.25 and 4.50 percent, a full percentage point below its level in September, when policymakers voted for the first rate reduction of this cycle.
The Fed, which has a dual mandate from Congress to tackle both inflation and unemployment, should now “begin shifting monetary policy toward a stance that neither stimulates nor restrains economic activity,” Bostic said, adding that he believed the US economy was on a “broadly” solid footing.
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