© Reuters. FILE PHOTO: Member of the Federal Reserve Board of Governors Philip Jefferson attends a dinner program at Grand Teton National Park where financial leaders from around the world are gathering for the Jackson Hole Economic Symposium outside Jackson, Wyomin
By Howard Schneider
WASHINGTON (Reuters) -Inflation for a broad array of services in the United States remains “stubbornly high,” Federal Reserve Governor Philip Jefferson said Monday, though slower-growing wages might help slow prices in those parts of the economy as well.
Though the Fed has seen some progress in slowing price increases for goods and expects the same to happen in housing, inflation continues for services ranging from restaurants to medical care — and will likely need to slow for the central bank to make clear progress back towards its 2% inflation target.
“Core goods inflation has started to come down. Several indicators suggest that housing services inflation is likely to come down in the coming months. There is more uncertainty surrounding inflation in core services excluding housing,” Jefferson said in remarks to a Harvard University economics class.
“The inflation outlook for this nonhousing category of core services partly depends on whether growth in nominal labor costs comes back down, and recent data suggest that labor compensation has indeed started to decelerate somewhat over the past year.”
In later comments in response to questions, Jefferson said he was under “no illusion” that inflation would return quickly to the Fed’s target, and noted that the Personal Consumption Expenditures price index remained “elevated,” jumping unexpectedly last month to a 5.4% annual rate versus a 5.3% rate as of December.
The Fed uses the PCE index to sets its inflation target.
“I’m under no illusion that it’s going to be easy to get the inflation rate back down to 2%,” Jefferson said. “There’s a lot of resolve on the part of the (Federal Open Market) Committee. I know that I am committed to doing what it takes.”
Jefferson did not detail his views on the Fed’s upcoming policy decision, or how much higher he thinks the target federal funds rate might have to move beyond the 4.5% to 4.75% range set at the Fed’s last meeting. The central bank meets on March 21-22 and is expected to approve a quarter point rate increase, while also providing new projections about policy for the rest of the year.