(Yahoo!Finance) - Two Federal Reserve governors in separate speeches Tuesday offered different approaches to getting inflation down, reflecting a division within the central bank about whether interest rates need to go higher.
Fed governor Michelle Bowman said she thinks the Fed will have to raise rates further to bring inflation down "to our 2% target in a timely way."
But Fed governor Christopher Waller said he is becoming more confident rates are at the right levels even though he needs more data to be sure.
"I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%," Waller said before the American Enterprise Institute in Washington.
The Fed's Federal Open Market Committee elected to keep interest rates unchanged in a range of 5.25%-5.50%, a 22-year high, at the conclusion of its last meeting. It meets for the last time this year on Dec. 12-13.
Investors do not expect the Fed to vote for additional hikes, but the majority of the rate-setting committee penciled in one more rate hike this year when it last published forecasts in September, leaving the last meeting in mid-December a possibility.
Bowman said Tuesday while speaking at the Utah Bankers Association and Salt Lake City Chamber Banker and Business Leader Breakfast that the level of inflation remains high and recent progress has been uneven.
Bowman said she thinks much of the improvement in inflation so far has been thanks to the resolution of supply-chain bottlenecks and that it’s unclear if that will continue to lower inflation. She also thinks there’s a risk too few workers could put upward pressure on inflation and also said government policies such as the CHIPS Act and Inflation Reduction Act could be inflationary.
"My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way," she said.
Waller was also once worried that hot economic growth could halt progress on falling inflation if sustained.
But in his Tuesday speech titled "Something Appears to Be Giving," he said he was encouraged by data showing an economy that is cooling and inflation that is dropping gradually. He cited October retail sales that showed a slowdown in consumer spending when compared with the torrid pace of the third quarter.
But inflation, he added, is still too high still too high and it’s too early to say whether the slowdown will be sustained to get inflation back to the central bank’s 2% target.
"There is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability. Hopefully, the data we receive over the next couple of months will help answer that question."
The Consumer Price Index for October showed inflation on a "core" basis, which strips out the more volatile costs of food and gas, climbed 4% over the prior year, down from September's 4.1% increase and the slowest since September 2021. Still, this reading is double the Fed's inflation target of 2%.
Waller said the Consumer Price Index for October was what he wanted to see. For the month, there was no inflation, prices were virtually flat, and unlike earlier moments where improvements were concentrated in some goods and services, the moderation in inflation was broadly distributed.
By Jennifer Schonberger · Senior Reporter
