MNI: Two Fed Officials Warn of Inflation Persistence

Two Federal Reserve officials Friday warned inflation in the U.S. may only come down slowly, in part due to a continued imbalance between the supply and demand for labor.

"The ongoing imbalance between the supply and demand for labor, combined with the large share of labor costs in the services sector, suggests that high inflation may come down only slowly," Fed Governor Philip Jefferson said in prepared remarks at the U.S. Monetary Policy Forum that focused on a keynote paper. Cleveland Fed President Loretta Mester also touched on the economic outlook.

"Inflationary forces impinging on the U.S. economy at present represent a complex mixture of temporary and more long-lasting elements that defy simple, parsimonious explanation," Jefferson added. Some economists have told MNI they see a risk the Fed raises rates above 6%.

UPSIDE RISKS

The Commerce Department Friday reported core PCE inflation rose 0.6% in January, compared with the 0.3% forecast. The year-on-year figure was 4.7%, substantially higher than the 4.3% anticipated.

Cleveland Fed President Loretta Mester Friday said she sees "risks to the inflation forecast as tilted to the upside and the costs of continued high inflation as being significant."

"While it is welcome news to see some moderation in inflation readings since last summer, the level of inflation matters and it is still too high," she said. "Policy decisions need to consider the risk around the forecast but also the costs of continued high inflation to households, businesses, and the longer-run health of the economy."

"With the labor market still strong, the costs of undershooting on policy or prematurely loosening policy still outweigh the costs of overshooting," Mester said.