UPDATE - US Fed vice chair Barr finds Q1 inflation figures 'disappointing'

ADDS COMMENTS BY VICE CHAIR OF BOARD OF GOVERNORS OF FEDERAL RESERVE SYSTEM

By Ovunc Kutlu

ISTANBUL (AA) — US Federal Reserve Vice Chair of Supervision Michael Barr said Monday he thinks inflation readings in the first quarter of this year were "disappointing."

"We have made tremendous progress over the past two years on the inflation component," he said at the 28th Annual Financial Markets Conference held in Fernandina Beach, Florida. "Inflation has fallen from its peak of 7.1 percent to 2.7 percent today. But we are not yet all the way to our target of 2 percent."

Producer inflation in April rose 2.2% annually and 0.5% on a monthly basis, both above market estimates, but the consumer inflation annually rose 3.4% in April, and monthly increased 0.3%, both slowing down from March. The annual figures, however, are still above the Fed's target of 2%.

"These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy by reducing the federal funds rate. This means that we will need to allow our restrictive policy some further time to continue to do its work," he said.

The probability of a Fed rate cut of 25 basis points at the Fed’s next meeting on June 12 stood at just 2.6% as of Monday, according to the FedWatch Tool provided by the US-based Chicago Mercantile Exchange Group. However, an interest rate cut of 25 basis points on Sept. 18 was at 49.6%.

Barr has a voting right in the Federal Open Market Committee.

Philip Jefferson, the vice chair of the Board of Governors of the Federal Reserve System, on the other hand, welcomed the improved inflation reading in April as "encouraging."

"Core personal consumption expenditures (PCE) prices, which exclude volatile food and energy costs, rose at a faster pace over the first three months of the year than they did in the latter part of 2023. The April consumer price index and producer price index data point to a more modest increase last month," he said at the Mortgage Bankers Association’s Secondary and Capital Markets Conference and Expo 2024 held in New York.

"It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting," he added.

Jefferson stressed that high inflation imposes significant hardship, especially for those on fixed incomes and least able to meet the higher costs of essentials, including housing, transportation, and food.

"I believe that our policy rate is in restrictive territory as we continue to see the labor market come into better balance, and inflation decline although nowhere near as quickly as I would have liked," he said.

Jefferson said he would carefully assess the incoming macroeconomic data, evolving economic outlook, and balance of related risks.