U.S. inflation may be worse than what is showing up in government data and the Federal Reserve may have to keep raising interest rates if it persists, a Fed official said Friday.
“It’s, I believe, certainly my view that if the inflation rate continues to be persistent like this, the Federal Reserve will simply have to pursue persistently policies that will keep that inflation from increasing further,” Federal Reserve Bank of St. Louis President William Poole told reporters on the sidelines of a conference on monetary policy sponsored by the Bank of Korea.
Poole, a nonvoting member of the rate-setting Federal Open Market Committee, also described the U.S. economy as “fundamentally very robust.”
“Core inflation is modestly above what many of us have expressed as our comfort zone,” Poole said, though the current inflation “situation is absolutely not dangerous.”
The U.S. Labor Department reported Wednesday that its Consumer Price Index rose 0.4 percent last month, in line with expectations, while core inflation, which excludes food and energy, was up a worse-than-expected 0.3 percent.
Core prices are advancing at a 3.1 percent pace so far this year. That compares with a 2.2 percent increase in 2005.
Poole said there is still some time to go before the Fed’s next policy meeting on June 28-29.
“There’s still several weeks worth of information and a lot of expert analysis of the information we have,” he said. “I have a very open mind about what the conclusion of that meeting, or what my position will be, going into that meeting.”
Recent comments from Federal Reserve Chairman Ben Bernanke and other Fed officials have spurred widespread speculation that the U.S. central bank will raise the benchmark fed funds rate a quarter point to 5.25 percent at its next meeting. That would mark the 17th increase since June 2004.
Inflation concerns in the United States, the world’s largest economy, have contributed to declines in global markets in recent weeks amid perceived uncertainty about the Fed’s intentions with interest rates.
But markets got a boost after Bernanke said Thursday that record energy and commodity prices could account for some of the recent uptick in core prices but that inflation expectations have remained within historical ranges.
Earlier, Poole said that more attention should be paid to informal sources of information in addition to official data to determine the true extent of inflationary pressure.
“Statistical studies to detect pass-through from recent energy price increases have failed to show significant effects in U.S. price data,” he said in an address to the conference. “But stories about widespread pass-through are becoming increasingly common.”
“We may face more inflation pressure than currently shows up in formal data,” Poole said, emphasizing that his objective was “to make a general point and not to conduct a full analysis of the current situation.”
He also said that the views expressed in his speech were his own and “do not necessarily reflect official positions of the Federal Reserve system.”