Washington [US], February 15 : US Federal Reserve Vice Chair for Supervision Michael Barr has said the central bank would need to see more data indicating that headline inflation is aligning with to 2 per cent target, before it takes call to begin lowering policy rates.
The US Federal Reserve in its January meeting voted to leave the key interest rate unchanged at 5.25-5.50 per cent, keeping the policy rate unchanged for the fourth straight time on a trot.
"As Chair Powell indicated in his most recent press conference, my FOMC colleagues and I are confident we are on a path to 2 percent inflation, but we need to see continued good data before we can begin the process of reducing the federal funds rate," Barr said Wednesday speaking at the 40th Annual National Association for Business Economics (NABE) Economic Policy Conference, Washington.
He said he fully supported what he called a careful approach to considering policy normalization given current conditions.
January's report on consumer product index inflation is a reminder that the path back to 2 percent inflation may be a bumpy one, he noted.
Inflation in the US came in at 3.1 per cent, more than estimated by various quarters. Inflation has eased over the past year but remains elevated.
The US monetary policy committee had in its January policy statement said that the recent indicators suggested that economic activity has been expanding at a solid pace.
"Given the limited historical experience with the growth and inflation dynamics we currently face, and no modern experience of emerging from a global pandemic, we have yet another reason to proceed carefully, as we have been doing," Barr said.
US Fed had raised interest rates from near zero to now 5.25-5.50 per cent in the fight against inflation. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
US Federal Reserve's commitment has been to bring down consumer inflation to its target of 2 per cent.
For 2023 as a whole, the US' GDP expanded at 3.1 per cent, bolstered by strong consumer demand as well as improving supply conditions.
On possible loosening of monetary policy stance, US Fed Chair Jerome Powell had said after the monetary policy meeting that he believes that its policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin "dialing back" policy restraint at some point in 2024.
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