Two Federal Reserve governors reiterated Monday they see holding rates at current levels until there is more evidence inflation is falling, the latest central bank officials to stress a higher-for-longer stance.
Fed Vice Chair Philip Jefferson and Fed Vice Chair of Supervision Michael Barr pointed to disappointing inflation in the first quarter as a reason for holding rates where they are, allowing more time for restrictive policy to work.
Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards
"I think we are in a good position to hold steady and closely watch how conditions evolve," Barr said in a speech at an Atlanta Fed conference being held in Florida.
A better reading on inflation in April measured by the Consumer Price Index was encouraging, Jefferson said, but it’s not enough.
A look at the Fed’s preferred measure of inflation — the "core" Personal Consumption Expenditures index — over the first four months of the year shows inflation is still too high, he added.
Core PCE prices are estimated to have risen 4.1% over the first four months of the year, he said, referencing analysis from Federal Reserve staff. Jefferson says that’s well above the 12-month change, which staff estimates at 2.75%.
The Fed's goal is to get inflation down to 2%.
Jefferson expects consumer spending, which has remained strong barring the latest retail sales reading, to slow later this year as high interest rates weigh on spending.
"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," said Jefferson.
In April, the Consumer Price Index on a "core" basis, which strips out food and energy prices, rose 3.6% year over year, cooling from the 3.8% increase seen in March.
Monthly core price increases clocked in at 0.3%, in line with expectations and down from 0.4% in the prior three months.
Fed Chair Jerome Powell made it clear last week that he thinks the Fed will need more than a quarter's worth of data to really make a judgment on whether inflation is steadily falling toward 2%.
That implies it will take more than three inflation reports for the Fed to feel confident about lowering rates from a 23-year high, putting the odds of a first rate cut in September if the data supports such a move.
Investors are pricing in just under 50% odds for a rate cut in September, with dwindling odds for a second rate cut after that.
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