MNI: Fed’s Cook Says Inflation Is Too High, Some Signs Of Hope

U.S. inflation remains “far too high” for the Federal Reserve’s comfort despite recent dips in headline and core figures, Governor Lisa Cook said Friday, although there is some reason to hope for improvement.

“Both figures are down a bit from the peaks reached in the first half of last year. However, monthly data are quite volatile, so I would caution against putting too much weight on the past few favorable monthly data reports,” Cook told the American Economics Association in prepared remarks.

“Inflation remains far too high, despite some encouraging signs lately, and is therefore of great concern. As a Fed policymaker, I am committed to bringing inflation back to our 2% goal,” she said in a speech that did not directly address the outlook for interest rates.

Cook said she is heartened by signs that supply pressures have eased, and that new leases for rents bode well for a future easing in that stubborn component of core CPI.

“Although PCE housing services prices will likely increase further in the coming months as renters renew their leases, the deceleration in market rents suggests this process should slow appreciably over the course of this year.”

Inflation in other core services has stayed “stubbornly high,” Cook said, while also noting signs labor costs that have driven up prices have started to ease.

EXPECTATIONS UNDER CONTROL

Inflation expectations as measured by market gauges as well as consumer surveys suggest a benign outlook, she said.

“Since the onset of the pandemic, medians of many surveys of longer-run measures suggest that inflation expectations are still within their pre-pandemic ranges, despite having come up a little,” she said. "This is consistent with overall PCE price increases declining to a 2% pace.” The TIPS market and consumer surveys also point to a similar trend, she added.

“While households have raised their inflation expectations over the past few years, especially for the short-term measure, the increases were far less than one-for-one with how much they perceived inflation had already risen,” Cook said.

The Fed must ensure that faster inflation doesn't become chronic, Cook also said. "If cost shocks and supply disruptions keep inflation elevated for a long enough period, households’ and firms’ inflation expectations could move higher—a development that could put additional upward pressure on inflation," she said.