On Monday, Federal Reserve officials indicated they still believed U.S. inflation would slow, with house price increases projected to slow the headline rate, but they acknowledged a growing sense of apprehension.
"Although housing-services inflation remains quite high, the current low rate of increase on new rental leases suggests that it will continue to fall," Fed Governor Lisa Cook said a Harvard University event, recommending "cautious" monetary policy easing.
Chicago Fed President Austan Goolsbee told Yahoo Finance that housing inflation continues to surprise him but would eventually decline. After a gradual fall in 2023, "the main puzzle has been about housing," Goolsbee said, referring to housing, a major component of the consumer spending basket that has accounted for a large share of recent headline inflation readings.
"We've got to get housing inflation coming down closer to where it was before the pandemic," stated. "I do think the market rents show that there is progress to be made, but we have yet to see that in the overall data." Last week, the Fed held its benchmark overnight interest rate constant at 5.25%-5.50%, and the median policymaker still expects three quarter-percentage-point rate decreases this year, according to new quarterly economic estimates.
Goolsbee said he was in that median group, reflecting Fed policymakers' confidence that inflation will fall enough in the coming months to ease monetary policy. Since inflation slowed last year, the vocabulary and substance of the discussion have changed.
"We're in a little bit of a murky period," Goolsbee said, but he agreed with Fed Chair Jerome Powell's assessment last week that inflation's "story" had not changed. "It doesn't feel to me like we've changed fundamentally the story that we're getting back to target," Goolsbee said, suggesting that last year's consistent inflation drop was not "just random."
Atlanta Fed President Raphael Bostic told reporters late Friday afternoon that he was "definitely less confident" than in December about inflation progress and had reduced his policy outlook from two quarter-percentage-point cuts this year to one. "We've got to stay on top of this to make sure we understand what these dynamics are," Bostic said, adding that the share of items with outsized price increases was "reminiscent" of 2021 and 2022's 40-year inflation highs.
The Fed's inflation indicator, the personal consumption expenditures price index excluding food and energy, climbed 2.8% in January. Reuters economists anticipate February growth to be the same. Cook did not clarify her policy views for the year, although she agreed the Fed should be cautious when relaxing monetary policy. "The risks to achieving our employment and inflation goals are moving into better balance," stated. "Nonetheless, fully restoring price stability may take a cautious approach to easing monetary policy over time."
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