Ongoing rate hikes necessary – Fed



The Manila Times

Foreign Business

WASHINGTON, D.C.: Restoring price stability in the US will likely “require ongoing rate hikes” and a period of restrictive policy, Federal Reserve (Fed) board member Lisa Cook said Thursday (Friday in Manila) in her first speech as a Fed governor. Prices have surged over the past year, partly due to global supply chain problems that created shortages of key parts, such as semiconductors, needed for cars and electronics. The situation was exacerbated with Russia’s invasion of Ukraine in February — spurring a surge in energy prices and affecting global food markets — along with China’s adherence to a strict zeroCovid policy. “Inflation remains stubbornly and unacceptably high, and data over the past few months show that inflationary pressures remain broad based,” said Cook, speaking at the Peterson Institute for International Economics think tank. She added that the “widespread nature” of inflation pressures suggests that the economy is tight, with constrained supply continuing to fall short of demand. While the Fed cannot act directly on supply, it can moderate demand by tightening monetary policy, Cook added. The Fed has moved aggressively this year to tamp down demand to help drive prices lower, hiking interest rates five times, for a total of 3 percentage points. And the central bank has said that more increases are coming this year. In the current uncertain times, policy should remain focused on restoring price stability, Cook said, adding that this will set the foundation for a sustainably strong labor market. “Restoring price stability likely will require ongoing rate hikes and then keeping policy restrictive for some time until we are confident that inflation is firmly on the path toward our two percent goal,” Cook said. She noted that the longer inflation persists and the more people come to expect it, the greater the risks of elevated inflation becoming entrenched. “We will keep at it until the job is done,” she said. Cook’s nomination was narrowly approved in May, making her the first Black woman to serve on the central bank’s board. On Monday, New York Federal Reserve Bank President John Williams said the combination of cooling global demand and supply improvements should contribute to inflation declining to about 3 percent next year.