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The Federal Reserve raised its benchmark interest rate at an aggressive pace to reduce inflation, but “monetary policy affects the economy and inflation with long, variable, and highly uncertain lags,” Fed Governor Philip Jefferson said. in a prepared speech on Monday.
Interest rate hikes that began about this time a year ago have worked their way through the economy in recent months as inflation peaked in July. But consumer prices remain too high for the central bank’s liking. “We’re still learning about the full effect of our tightening up to now,” he said during a series of lectures at Washington and Lee University in Lexington, Virginia.
While Jefferson did not comment directly on his outlook for Fed policy, he explained that inflation should move back toward the Federal Open Market Committee’s 2% target as higher interest rates ultimately reduce demand for goods and services and therefore reduce inflationary pressures.
A part of the disinflation seen in recent months, notedit is the result of factors independent of monetary tightening, including “decreasing supply chain bottlenecks and falling energy prices.”
Over the weekend, Minneapolis Fed President Neel Kashkari said that recent tensions in the banking system will take time to clear up. And former PIMCO chief Mohamed El-Erian has previously argued that the Fed’s “least bad” option is to halt its rate hikes.
