May 20 Federal Reserve officials are not ready to say inflation is heading to the central bank's 2% target after data last week showed a welcome easing in consumer price pressures in April, with several on Monday calling for continued policy caution.
"It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting," Fed Vice Chair Philip Jefferson told the Mortgage Bankers Association conference in New York, even as he called the April data "encouraging."
Jefferson described current monetary policy as restrictive and declined to say if he expected rate cuts to commence this year, only noting that he will be carefully assessing incoming economic data, the outlook, and balance of risks.
Speaking separately at a conference held by the Atlanta Fed, Fed Vice Chair of Supervision Michael Barr, said "disappointing" first-quarter inflation readings were "did not provide me with the increased confidence that I was hoping to find to support easing monetary policy."
Like Jefferson, Barr reinforced the Fed's overarching message that rate cuts, highly anticipated by markets, are on hold until it is clear inflation will return to the Fed's 2% target.
Consumer prices cooled in April, and retail spending did not increase at all, two welcome signs that the economy may be losing some steam in the face of a policy rate that the Fed has held in the 5.25%-5.5% range since last July.
But Fed policymakers, stung by a string of higher-than-expected inflation readings for the three months prior, remain cautious and want to make sure pricing pressures are fully on track back to the Fed's 2% target rate before starting to cut its benchmark interest rate.
Cleveland Federal Reserve Bank President Loretta Mester, speaking to Bloomberg TV on Monday, said she continues to believe that inflation will fall this year, though more slowly than she had expected.
But the lack of progress on inflation in the first quarter, along with a stronger-than-expected economy, mean she no longer sees three rate cuts this year as likely, she said.
And, she said, if inflation against her expectation does stall out or gain ground, the Fed is well-positioned to respond "either by holding rates at current levels for longer or, if appropriate, raising the rate."
San Francisco Fed President Mary Daly, in an interview with Axios published Monday, said she sees no evidence of the need to hike rates, but at the same time is "not confident" that inflation is falling toward 2% and sees no urgency to cut rates.
The Fed's next policy meeting is June 11-12 meeting. Traders in contracts tied to the central bank's policy rate currently do not expect an interest rate cut until September.
In comments after his formal remarks, Jefferson said, "I am cautiously optimistic that we can continue our battle against inflation" while permitting the economy to continue to grow and create more jobs. He noted growth and job creation have been resilient, which gives him some confidence the Fed can do what it needs to do to get price pressures down.
Jefferson also weighed in the state of the Fed's balance sheet drawdown and noted the recently announced plans to slow the pace of the shrinkage comes allows the process to play out with reduced risk of creating financial market stress. He also noted there's little way to know yet how far the Fed needs to contract its holdings.