A top Federal Reserve official downplayed recent signs that the economy is strengthening but also said he is prepared to keep raising interest rates in smaller increments as often as needed to quell inflation.
last month reflected in part the impact of warm weather and the government's seasonal adjustment process, rather than an acceleration of growth that could push inflation higher.
Economists from Bank of America and Goldman Sachs both now expect the Fed will lift rates to a range of 5.25% to 5.5%, a quarter-point higher than the Fed itself projected at its December meeting. Its rate is currently 4.5% to 4.75%, the highest in 15 years. “I like the path because I believe it gives us the flexibility to respond to the economy as it comes in,” he said. “And that means that I’m comfortable raising rates potentially more often to a higher level.”
Inflation accelerated from December to January, and core prices excluding food and energy also rose more quickly than economists expected. Overall,“It is welcome news to see some moderation in inflation readings since last summer, but the level of inflation matters and it is still too high,” Mester said. Last month’s report showed “no improvement in underlying inflation.”
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