Fed officials keep talking about inflation Trio of central bank officials discuss threat in separate speeches, fueling speculation that Fed will raise rates again in late June.
June 12, 2006: 7:04 PM EDT
NEW YORK (Reuters) - Federal Reserve officials kept up their tough talk on inflation Monday, bolstering expectations in financial markets that another rate increase is on the way at the Fed's policy meeting later this month.
Views have been hardening that the Federal Open Market Committee will opt for a 17th straight rate rise at its June 28-29 gathering, pushing the federal funds rate to 5.25 percent in a bid to cap a recent worrisome climb in U.S. prices. Video More video How do U.S. federal interest rates affect your mortgage? CNN's Alan Chernoff does the math. (June 3) Play video
"The core CPI (consumer price index excluding food and energy) has increased at an annualized rate of more than 3 percent during the past three months. This inflation picture, if sustained, exceeds my comfort level," Cleveland Fed President Sandra Pianalto, a voting member of the FOMC this year, said in a speech in Orlando, Fla.
Still, she said if the economy moderates as forecast, a federal funds rate of 5 percent is near a point that will gradually ease inflation.
Fed Board Governor Susan Bies, speaking in Washington, offered a similar prognosis, saying U.S. rates were generally in the range they need to be, although she was still not sure where they would peak.
"If you asked me today, 'Sue, where are you going to stop?' I couldn't tell you, because we're in the range that we need to be, I think," Bies said in answer to a question after speaking on banking issues at the Financial Women's Association.
After two years of rate increases, the U.S. economy is at a turning point that leaves the central bank extremely dependent on incoming data and whether it accords with forecasts for slower growth, she said. All about CPI
Arguably, the biggest piece of economic news between now and the next FOMC meeting will be the May CPI report, due Wednesday.
Wall Street analysts forecast a rise of 0.2 percent in core CPI after two consecutive monthly gains of 0.3 percent that have unnerved financial markets, helped trigger a drop in the stock market and put the Fed in full jawboning mode.
"Last year I began to anticipate that we might confront some disappointing inflation data in the first half of this year, although I was not expecting quite as much inflation as we have seen," Pianalto said.
Still, Bies and Pianalto both emphasized the lag between Fed policy actions - the current string of rate increases dates back to June 2004 - and their impact on the economy.
There is "a lot in train" regarding previous rate moves, Bies said. "The trouble with monetary policy is it works with a long and variable lag" of anywhere from nine to 18 months.
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