By Howard Schneider
WOODBRIDGE, Va. (Reuters) – There are “promising signs” inflation pressures have begun to ease though it may take time be seen in the data, Richmond Fed president Thomas Barkin said on Friday.
“COVID seems to be moving into the rearview mirror. Supply shocks are easing…Some large retailers have announced they are overstocked. Housing seems to be settling. Employers are having more hiring success…We’ve seen a broad range of commodities drop from peak pricing levels,” Barkin said to the Prince William Chamber of Commerce in Virginia. Business executives “still view their increased pricing power as temporary. They see it as an episode, not a regime change.”
That has not, however, yet become apparent in high level inflation data, and Barkin said the Fed would “persist” with interest rate increases and “not declare victory prematurely.””Inflation should come down. But I don’t expect its drop to be immediate or predictable,” Barkin said. “We’ve been through multiple shocks…and significant shocks simply take time to dampen.”
The Fed’s preferred measure of inflation in August continued increasing at a 6.2% annual rate, more than triple the Fed’s 2% target. A measure that removes volatile food and energy prices, sometimes considered a better measure of underlying price pressure, rose to 4.9% from 4.6%.
The Fed last week approved its third consecutive three quarter point rate increase, and has now moved the target policy rate from near 0 as of March to a range between 3 and 3.25% in one of the fastest monetary policy shifts in decades.
Further increases are expected in coming Fed meetings.
Addressing criticism that the Fed’s failure to raise rates earlier allowed inflation to become more persistent, Barkin said “with perfect hindsight, it would have made sense” to raise rates earlier.
“In theory, if monetary policy had been different enough, perhaps it could have made a difference. But how much faster would we have had to move to be in a demonstrably different place?,” Barkin said. “Sick workers would still have had to stay home. Car manufacturers would still have been short chips. Russian oil and Ukrainian wheat supplies would still have been disrupted.”
(Reporting by Howard Schneider; Editing by Chizu Nomiyama)