(Bloomberg) -- Federal Reserve Bank of Kansas City President Esther George said she expects the central bank to raise interest rates to 2% by August, with the further course of tightening being guided by how surging inflation cools off.
“Fed policymakers have emphasized a commitment to act expeditiously to restore price stability, and I expect that further rate increases could put the federal funds rate in the neighborhood of 2% by August,” George said Monday night in prepared remarks to the bank’s agriculture symposium. “Evidence that inflation is clearly decelerating will inform judgments about further tightening.”
The Fed raised interest rates by 50 basis points earlier this month -- to a target range of 0.75% to 1% -- and Chair Jerome Powell has signaled it was on track to make similar-sized moves at its meetings in June and July. That’s a plan which both hawks and doves on the policy-setting Federal Open Market Committee have since embraced to curb the hottest inflation since the 1980s.
George, who has been known as a longtime policy hawk who more recently moved to the center, criticized monetary policy for having “belatedly” shifted to fight inflation, which she called a “top priority” for the Fed to return to its 2% goal.
While some of the price gains have been related to supply difficulties such as a shortage of semiconductors, and more recently the Russian invasion of Ukraine, George said an ‘’unusually tight” labor market has contributed to rising prices even in sectors of the US economy where demand hasn’t fully recovered to pre-pandemic levels.
She cited air travel and hairdressing as two sectors where prices have surged despite weaker demand. Service employers have struggled to hire amid a spate of retirements as well as a significant drop in immigration, she said.
“The inflation we are now experiencing is obviously both too high and too broad to dismiss,” George said.
“The central bank’s job is to prevent persistent imbalances from feeding into inflation and unmooring inflation expectations,” she said. “By influencing interest rates, the Federal Reserve primarily affects the demand side of the imbalance. The evolution of its efforts alongside other factors will affect the course of monetary policy, requiring continuous and careful monitoring.”
©2022 Bloomberg L.P.