Retiring Fed official urges no let-up on inflation

Jan. 18—Consumers received some good news on inflation when the latest government report showed the lowest rate of increase in 12 months.

But that doesn't mean Federal Reserve policymakers are ready to ease up on interest rates.

Esther George, a graduate of Missouri Western State University, had a seat on the influential Federal Open Market Committee that charted a course of interest rate hikes last year in an effort to tamp down the highest level of inflation in 40 years.

"It will take some time, I think, to get to the goal which is 2% inflation over the long run," said George, who retires this month after 11 years as president of the Federal Reserve Bank of Kansas City. "We will need to see more progress that inflation is softening. Over the long run, that is very important for everyday people to have stability in the prices they experience."

The U.S. Bureau of Labor Statistics reported that consumer prices rose 6.5% in December, the smallest year-over-year increase in more than a year. But George noted that prices remain stubbornly high in certain areas: rental units and the service sector in general. In December, the cost of rental units rose 8.3% nationwide and 7% in the Midwest.

That suggests that the Federal Open Market Committee, which meets in late January, could keep rates elevated in 2023. The minutes of the central bank's December meeting show that policymakers remain committed to fighting inflation and expect higher interest rates to remain in place.

The benchmark federal funds rate is set at 4.25% to 4.5% after an increase of a half percentage point in December.

George, who brought a hawkish inflation outlook to the committee, believes the rate-setting group will arrive at a consensus that seeks to insulate the economy from recession but makes long-term price stability a priority.

"Of course, everyone wants a soft landing," she said. "The Federal Reserve is very focused on saying we know what the task is in front of us, and that is to bring inflation down."

Greg Kozol can be reached at [email protected]. Follow him on Twitter: @NPNowKozol.

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