Market Data 
By Michael S. Derby and Howard Schneider
(Reuters) – Two top Federal Reserve officials said Monday they’re not yet ready to say inflation trends are again moving sustainably back to the central bank’s 2% target, weighing in after data last week showed a welcome easing in consumer price pressures in April.
“It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting,” Jefferson said in a speech given before a the Mortgage Bankers Association conference in New York. “The better reading for April is encouraging.”
Jefferson, who described current monetary policy as restrictive, declined to say if he expected rate cuts to commence this year and instead noted, like his colleagues, that he will be carefully assessing incoming economic data, the outlook, and balance of risks.
Speaking separately at a conference held by the Atlanta Fed, Michael Barr, who leads the central bank’s bank regulation work, said “inflation readings in the first quarter of this year were disappointing. These results did not provide me with the increased confidence that I was hoping to find to support easing monetary policy,” Barr said in prepared remarks.
“We will need to allow our restrictive policy some further time to continue its work,” Barr said, reinforcing the Fed’s overarching message that rate cuts, highly anticipated by markets, are on hold until it is clear inflation will return to the Fed’s 2% target.
Data last week, which showed consumer prices rose slower than expected in April and retail spending did not increase at all, both provided some welcome signs that the economy may be losing some steam.
But Fed policymakers, stung by a string of higher-than-expected inflation readings for the three months prior, remain cautious and want to make sure pricing pressures are fully on track back to the Fed’s 2% target rate before starting to cut its benchmark interest rate.
Housing inflation has been a particular thorn in the Fed’s side and Jefferson noted price changes to a main component of it, market rents, take a long time to pass through to a key gauge on inflation known as the Personal Consumption Expenditures index.
“This lag suggests that the large increase in market rents during the pandemic is still being passed through to existing rents and may keep housing services inflation elevated for a while longer,” Jefferson said.
The Fed’s next policy meeting is June 11-12 meeting. Traders in contracts tied to the central bank’s policy rate currently do not expect an interest rate cut until September.
In comments after his formal remarks, Jefferson said, “I am cautiously optimistic that we can continue our battle against inflation” while permitting the economy to continue to grow and create more jobs. He noted growth and job creation have been resilient, which gives him some confidence the Fed can do what it needs to do to get price pressures down.
Jefferson also weighed in the state of the Fed’s balance sheet drawdown and noted the recently announced plans to slow the pace of the shrinkage comes allows the process to play out with reduced risk of creating financial market stress. He also noted there’s little way to know yet how far the Fed needs to contract its holdings.
