Richmond Fed President Thomas Barkin expressed his comfort with Fed’s current approach to interest rate hikes, stating, “I’m comfortable with the trajectory we’re on now, meeting by meeting, whether you need a 25 basis point hike or not.” He acknowledged the challenges of finding the right balance, but emphasized that even if the decision isn’t perfect, it won’t be too far off.

Barkin also addressed the uncertainties surrounding the ongoing banking situation and its potential impact on consumer confidence, business investment, and the availability of credit. “There is a lot of uncertainty about what if anything this bank situation does to consumer confidence, business confidence, business investment, consumer spending, availability of credit,” he said, adding that it’s difficult to predict the future effects on demand and inflation.

Despite the uncertainties, Barkin highlighted the wide range of possible outcomes and Fed’s ability to respond accordingly. “If inflation persists, we can react by raising rates further,” he said. “If I am wrong about the pricing dynamics at play, or about credit conditions, then we can respond appropriately.”

Minneapolis Fed President Neel Kashkari expressed concerns over the current state of the service economy and its potential impact on inflation. “The one area that is particularly concerning right now is that the services economy, outside of housing, has not shown any sign of slowing down,” he said yesterday.

Kashkari emphasized the need for further action, stating, “Wage growth is still growing faster than what is consistent with our 2% inflation target; that tells me we still have more work to do to bring the services side of the economy back into balance… we know we have to get inflation down, and we will.”

He also addressed the ongoing banking stresses, drawing a comparison to the 2008 financial crisis. While he doesn’t expect a repeat of that situation, he cautioned that banking panics tend to take longer to resolve than expected: “Every time in 2008, we thought we were through it, there was another shoe yet to drop. So I am prepared to think this could take a little longer than we expect until we fully get behind it.”

Although the US banking system is sound and most banks are prepared for higher rates, Kashkari raised concerns about the potential for a sustained credit crunch, which could slow down the economy. “What’s unclear right now is how much the banking stresses of the past few weeks are leading to a sustained credit crunch,” he said.

Fed’s ongoing battle against inflation was underscored by Boston Fed President Susan Collins, who expressed concerns over the persistently high inflation rates. She stated yesterday, “Inflation remains too high, and recent indicators reinforce my view that there is more work to do, to bring inflation down to the 2% target associated with price stability.”

Collins reiterated her belief that Fed can successfully lower inflation without causing a recession, but acknowledged that a rise in unemployment would be necessary to achieve this goal. As Fed prepares for its May meeting, Collins admitted it is too early to predict the appropriate course of action.

She also noted that recent developments may lead banks to adopt a more conservative outlook and tighten lending standards, thus helping to slow the economy and reduce inflationary pressures. “These developments may partially offset the need for additional rate increases,” she added in her prepared remarks.

Fed Philip Jefferson stated yesterday that the current inflation rate is too high, emphasizing the FOMC’s goal to reduce it to 2% as quickly as possible. Speaking at Washington and Lee University in Lexington, Virginia, he acknowledged that the process may take some time due to persistent inflation components such as services excluding housing.

Jefferson said, “I would like to say that inflation will return to 2% soon, but we have to do it in a way that does not damage the economy any more than is necessary. That’s what we are trying to do.” Fed is grappling with the challenge of ensuring price stability amid high inflation while also maintaining financial stability in the wake of the second-largest bank failure in US history.

In his speech, Jefferson also noted that although inflation has begun to decline, it remains unclear whether this decrease is due to higher interest rates, easing pandemic-induced supply strains, or falling energy prices.

He highlighted the uncertainty surrounding the full impact of the Fed’s tightening measures, saying, “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.”