Fed will work to reduce inflation ‘until the job is done’: Board governor


DETROIT — Lisa Cook, a member of the Federal Reserve Board of Governors, said the Federal Reserve will continue to work to bring down inflation “until the job is done,” which includes increasing interest rates.

The job will be done when the Fed’s preferred measure of increasing prices is at the central bank’s 2% target. Presently, it’s running about three times that rate, despite the Fed raising its policy rate nearly 4 percentage points to its highest level in 14 years. Some fear increasing rates will raise unemployment.

“Notwithstanding some easing of these pressures on goods prices, services prices continue to rise briskly,” said Cook, who became the first Black woman to join the Fed’s board in May. “Altogether, inflation is still unacceptably high and must be our primary focus.”

How much rates could increase by, though, Cook says remains unclear: “As we get closer to that uncertain destination, it would be prudent to move in smaller steps. How far we go, and how long we keep rates restrictive, will depend on observed progress in bringing down inflation.”

Her statements comes as the Fed’s chair, Jerome Powell, also said Wednesday the bank will push rates higher than previously expected and keep them there for an extended period to steady the economy.

Regarding the potential for a recession, Cook says the Federal Reserve isn’t the one to make that determination. The National Bureau of Economic Research looks at economic indicators that are widespread throughout the economy and over the course of months to classify a recession. The burst of a housing bubble cascaded into the Great Recession.

“The housing sector is in a much better place” than the previous financial crisis, Cook said, noting credit quality is different when it comes to mortgages today.

And the Federal Reserve has learned from the past, she added, noting how the bank moved quickly during the pandemic: “The financial system has held up.”

Major drivers of inflation are a labor shortage and supply-chain bottlenecks, the former Michigan State University professor said, but she emphasized the role of productivity in pricing. She noted the rate at which productivity has grown is half that it was in the mid-’00s.

“This is cause for concern,” she said. “When firms see rising output per hour, they have room to keep prices low. For consumer goods, this can help lower inflation. For material inputs, this lowers the cost of downstream production. And for equipment, lower prices mean more capital investment, a knock-on effect that boosts productivity further.”

That’s why increasing rates of businesses being created in the last two years is a good sign to foster innovation and competition, Cook said. Additionally, automated processes, especially in manufacturing, aren’t necessarily a bad thing.

“When robots take over one task, workers are shifted to another task and, in turn, new tasks appear,” she said. “We need production workers to work with the new equipment and to focus on the problem-solving that robots do not do well. That means that the next generation of plant workers will use touch screens a lot more and rivet guns a lot less.”

Manufacturing, she emphasized, is healthy. Its employment has risen for 18 consecutive months, and the sector is producing 3% above pre-pandemic levels.

“If manufacturing,” she said, “were to return to its role as a productivity leader, productivity for the total economy would grow noticeably faster.”

The remarks comes after President Joe Biden visited a semiconductor materials plant outside Bay City on Tuesday, emphasizing the need to return supply chains to United States shores.

Cook also commented on cryptocurrencies in response to a question, noting their declining value hasn’t resulted in a greater financial crisis.

“That says that the regular banking regular examinations … about this potential intersection between crypto and banking activities, those actually have stood up,” she said. “Sometimes you may not need — I’m not saying you don’t need — a lot more different types of regulation. Maybe you just need to do the job that was already empowered to do.”

Rising interest rates affect the work of people like Michael Balow, vice president of advisory and transaction services at commercial real estate services provider CBRE Group Inc. The hope for greater stability in interest rates was an important message he heard from Cook, he said.

“I’m taking away that we should remain optimistic,” he said. “We’re in a time that’s a bit unprecedented, but there are certain things we’ve learned, and we’ve always found a way.”

Interest rates also are a major factor in the business of Tiffany Ford, the CEO of the University of Michigan Credit Union.

“They’re focused on reducing inflation, and they’re taking very systematic, meaningful steps to do,” she said after Cook’s presentation.

Donna Doleman Dickerson, the credit union’s chief marketing officer, added: “She said the focus on inflation is to address the costs of everyday needs like food and energy. To focus on that fact is prudent.”

©2022 www.detroitnews.com. Visit at detroitnews.com. Distributed by Tribune Content Agency, LLC.


Please enter your comment!
Please enter your name here