Fed’s Jeffereson: Some components of inflation have proved persistent, lowering them will take time

Federal Reserve Governor Philip Jefferson said on Monday, per Reuters, “Fed is ‘still learning’ how much impact its interest rate increases have had on the economy and inflation.”

“Inflation ‘has started to come down,’ with some of that due to tighter monetary policy and some due to other factors such as improving global supply chains,” Fed’s Jefferson said in remarks prepared for delivery at an event at Washington and Lee University.

Additional comments

Inflation ‘should fall back’ toward the Fed's 2% target as higher interest rates discourage spending in interest-rate sensitive sectors of the economy like housing.

Inflation ‘has started to come down’ with some of that due to tighter monetary policy and some due to other factors such as improving global supply chains.

Monetary policy affects the economy and inflation with long, variable, and highly uncertain lags, and we are still learning about the full effect of our tightening thus far.

No comments on recent bank stress.

No views about whether the Fed should continue raising interest rates at upcoming meetings.

Following the speech, the policymaker also participates in the Question and Answer (Q&A) session.

Following the speech, the policymaker also participates in the Question and Answer (Q&A) session.

Q&A response

Inflation has been longer lasting and current rate is too high.

Want to return to 2% sooner rather than later; don't want expectations to become embedded.

Some components of inflation have proved persistent, lowering them will take time.

Would like to say inflation will return to 2% soon, but have to avoid damaging the economy ‘any more than is necessary’.

Fed actions in recent weeks has aimed to show depositors there is ‘someone out there willing to lend’.

Fed wants banks that need liquidity to feel its okay to use the discount windown.

Recent rise in discount window lending is appropriate at the moment.

Here is a high degree of transparency at the Fed.

If small and regional banks contract in size could see lending standards change and could have a disproportionate impact on small business.

Fed will need to see how changes in credit standards play out, want community and regional banks to be strong.

Climate change important to the point that it influences safety and soundness of banks.

Important fed knows what is happening in the financial sector in terms of risk.

Market reaction

EUR/USD was last seen rising to 1.0800, extending the week-start rebound amid sluggish Asian session.

Also read: EUR/USD rebounds after two consecutive days of losses, boosted by risk-on impulse, weaker USD