More interest rate increases might be needed to tamp down high inflation, but at this point inflation pressure seems to be “gradually” receding, Chicago Federal Reserve President Michael Moskow said on Monday (Nov. 6).
Reuters reported that inflation should moderate on the back of slower economic growth and the recent decline in oil prices, and recent data suggest this is happening, Moskow told reporters after giving a speech to business leaders at an event held by the Chicagoland Chamber of Commerce and WBBM Radio.
For now, though, “my current assessment is that the risk of inflation remaining too high is greater than the risk of growth being too low,” the policy-maker said.
“By my standards, inflation has been too high,” and core inflation – with volatile energy and food prices stripped out – could continue to run above 2% “for some time,” he said.
The Federal Open Market Committee (FOMC) has held interest rates steady at 5.25% for its past three meetings, after raising rates at 17 consecutive meetings over two years.
Inflation expectations have been contained, but if they were to increase, “it would be incumbent on the Federal Reserve to adjust policy to affirm our commitment to price stability,” said Moskow, who will be a voting member of the policy-setting FOMC in 2007.
Although the Fed has indicated it has a tightening bias, financial markets bet the central bank will start trimming rates during the first half of 2007.
Moskow said he would not interpret what the market was signaling and that policy-makers use their “best judgment” based on economic data and anecdotal information from business contacts across the country.
“High levels of resource utilization” have helped keep inflation high, and the labor market, where unemployment is now running under 4.5%, is tight, he said.
Moskow said developments in the labor force, such as declining participation by some groups, meant that a monthly jobs increase of about 100,000 was likely consistent with potential.