(Finance) – “Whether you measure inflation using consumer prices or the Fed’s preferred measure of personal consumption spending, it is still too high and therefore my work is not finished“. He stated this Christopher Waller, a member of the US Federal Reserve Board of Governors, at an event in San Antonio. “As financial conditions have not tightened significantly, the labor market remains strong and somewhat tight, and inflation is well above target, the monetary policy needs to be tightened further – he explained – How much longer will depend on the incoming data on inflation, on the real economy and on the extent of the tightening of credit conditions”.
The US central bank official stressed that “another implication of my perspective and the slow progress of recent times is that, from now on, monetary policy will have to remain restrictive for a considerable period of timeand for longer than the markets expected.”
On the turmoil in the banking sector, Waller said that – in recent weeks – there has been a stabilization of deposit flows and this has allowed central bankers to focus on the macroeconomic objectives of price stability and maximum employment when setting the official rate. Against this backdrop, the FOMC raised its rate by 25 basis points at its latest meeting.
“That said, it is not clear to what extent the stress in the banking system will weigh on economic activity If banks feel the need to adjust their business models or are uncertain about the stability of their deposit base or the momentum of the economy, they could tighten credit conditions and reduce lending. Tighter financial or other lending conditions would likely cause households to cut spending and businesses to withdraw investment and hiring, which will help bring supply and demand back into better balance and reduce inflation towards our target of 2%”.
“All things being equal, a significant tightening of credit conditions could obviate the need for further tightening monetary policy, but making such a judgment is difficult, especially in real time”, he underlined.
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