Prices Are Still Front and Center for Fed Officials

The job market is showing signs of stability. Now, if the Federal Reserve can only get inflation under control. 

Employers added 130,000 jobs in January, surprising economists. But some Fed officials this week said their focus remains on elevated prices as the central bank looks at whether more interest rate cuts are needed for the economy. The comments come ahead of this Friday’s release of January inflation data, following the December report that showed annual price increases of 2.7% remained well above the Fed’s target. 

“We must remain focused on our headline inflation objective; otherwise, I believe there is a real risk that inflation will get stuck closer to 3% than 2% in the long run,” said Kansas City Fed President Jeffrey Schmid in a statement.

Miran Argues There’s Still Room to Cut Rates

But just because the job market is strong doesn’t mean that there isn’t more room to cut interest rates, Fed Governor Stephen Miran told Fox Business after Wednesday’s jobs numbers were released.

Miran has pushed for larger interest rate cuts since President Donald Trump appointed him to fill a vacancy at the Fed last year. He said on Wednesday that fewer regulatory burdens on the U.S. economy would help it produce more, which would lower prices and give the Fed the opportunity to further cut rates.

“I view there being a variety of reasons to why I want to see lower interest rates,” Miran said. “While today’s job data made me feel really good about the economy, I think the truth is that pushing out the supply side of the economy still allows for monetary policy to accommodate that.”

Central Bankers Still See Inflationary Pressures

Schmid, along with other regional central bank presidents, said that the Federal Reserve should keep interest rates at their current levels while they watch for inflation to subside. Dallas Fed President Lorie Logan said that the federal funds rate is near its “neutral” point, where it neither constrains nor stimulates the economy.

The central bank kept interest rates steady at its most recent meeting in January after cutting interest rates at the prior three meetings. Investors are pricing in a strong likelihood that the Fed will again hold rates steady when it issues its next decision on March 18, according to the CME FedWatch Tool.

“Looking ahead, I anticipate we’ll see progress on inflation this year,” Logan said. “But I am not yet fully confident inflation is heading all the way back to 2%.”

Officials Debate the Impact of Tariffs on Prices

Cleveland Fed President Beth Hammack also said the Fed should keep rates where they are, given that inflation remains high. She added that the tariff policies championed by Trump will still likely affect inflation.

“One notable development over the last year has been the rise in goods inflation, especially for items that are more exposed to global trade,” Hammack said. “While some firms have already passed these costs along, others say that more price increases are coming.”

But in separate remarks earlier this week, Miran argued the impacts of tariffs on the U.S. economy have been “quite muted,” according to a report from Reuters. In comments at the Boston University Questrom School of Business, Miran said that he disagreed with reports indicating that American consumers were largely bearing the brunt of Trump’s tariffs.