Fed officials open post-meeting comments with a hawkish vibe

By Howard Schneider

WASHINGTON (Reuters) -U.S. Federal Reserve officials struck a hawkish tone in their first comments since the central bank held the policy interest rate steady at its meeting this week but signaled that rate hikes will likely resume.

“Core inflation is not coming down like I thought it would,” Federal Reserve Gov. Christopher Waller said at an economics conference in Norway. “Inflation is just not moving and that’s going to require, probably, some more tightening to try to get that going down.”

In earlier prepared remarks he said that changes in U.S. credit conditions since the failure of Silicon Valley Bank in early March were “in line” with financial tightening that was already underway due to Federal Reserve interest rate increases — comments that downplayed the idea a worse-than-anticipated contraction in credit might make further Fed rate increases less necessary.

“It is still not clear that recent strains in the

banking sector materially intensified the tightening of lending conditions,” beyond what the Fed was trying to do anyway through its interest rate policy, Waller said.

The U.S. economy was “still ripping along for the most part,” he said, with the underlying pace of price increases “moving sideways.”

Recent declines in headline inflation have been driven largely by food and energy prices, volatile commodities whose price swings can mask underlying inflation trends.

Excluding those goods, the personal consumption expenditures price index as of April was increasing at a 4.7% annual pace, more than twice the central bank’s target.

In separate comments at a financial officers forum in Maryland, Richmond Federal Reserve president Thomas Barkin said he was “comfortable” with further rate increases given that inflation was not yet on an obvious path back to 2%.

Demand in the U.S. was weakening somewhat, he said, but “I am still looking to be convinced of the plausible story that slowing demand returns inflation relatively quickly” to the 2% target, Barkin said. “If coming data doesn’t support that story, I’m comfortable doing more.”

The Fed this week ended its run of 10 consecutive rate hikes when policymakers decided to keep the benchmark overnight interest rate in a range of from 5% to 5.25%.

But they also issued new projections showing 12 of 18 Fed officials see rates rising at least another half point by the end of the year.

Though Fed chair Jerome Powell at a press conference Wednesday said no decision had been made about the upcoming July Fed meeting, investors and other analysts broadly expect the Fed to resume rate increases.

Neither Waller or Barkin spoke directly to their policy preferences for the July meeting.

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