WASHINGTON- Federal Reserve officials said on Monday they still had faith that US inflation will ease, with housing price increases in particular expected to help pull down the headline pace of price increases, but also acknowledged an increased sense of caution around the debate.
“Although housing-services inflation remains quite high, the current low rate of increase on new rental leases suggests that it will continue to fall,” Fed Governor Lisa Cook told an event hosted by Harvard University in which she endorsed a “cautious” approach to easing monetary policy.
In an interview with Yahoo Finance, Chicago Fed President Austan Goolsbee said the persistence of housing inflation continues to surprise him, but that he also felt it would ebb.
Noting the slowed progress on inflation overall this year, after a steady decline in 2023, “the main puzzle has been about housing,” Goolsbee said, a major component in the consumer spending basket that has accounted for a large share of recent headline inflation readings.
“We’ve got to get housing inflation coming down closer to where it was before the pandemic,” he said. “I do think the market rents show that there is progress to be made, but we have yet to see that in the overall data.”
The Fed last week held its benchmark overnight interest rate steady in the 5.25 percent -5.50 percent range, and in new quarterly economic projections showed the median policymaker still expects three quarter-percentage-point rate cuts this year.
Goolsbee said he was in that median group, showing continued faith among Fed policymakers that inflation will decline enough in the coming months for the monetary policy easing to proceed.
But the rhetoric and the substance of the debate have begun to shift since the steady decline of inflation last year gave way to a slower pace of progress.
“We’re in a little bit of a murky period,” Goolsbee said, though in general he said he agreed with Fed Chair Jerome Powell’s characterization last week that the overall “story” of a continued decline in inflation had not changed.
“It doesn’t feel to me like we’ve changed fundamentally the story that we’re getting back to target,” Goolsbee said, arguing that the months of steady inflation decline last year were probably not “just random.”
Others, however, have begun to have their doubts.