High energy prices may reverse progress on US inflation: Fed governor

ISTANBUL

US Federal Reserve Governor Michelle Bowman said Monday that high energy prices could reverse recent progress seen on inflation.

"Most recently, the latest inflation reading based on the personal consumption expenditure (PCE) index showed that overall inflation rose, responding in part to higher oil prices," she said during her speech at Mississippi Bankers Association and the Tennessee Bankers Association held in Banff, Canada.

"I see a continued risk that high energy prices could reverse some of the progress we have seen on inflation in recent months," she added.

Fed's preferred inflation indicator, the core personal consumption expenditures (PCE), softened in August both annually and monthly. On a monthly basis, however, energy prices jumped 6.1% due to recent increase in crude oil prices.

A sudden decline in US crude oil stocks below a critical threshold caused oil prices to climb above $95 a barrel last week, as they have been on the rise recently due to supply cuts from OPEC+ group and growing global demand.

Fed made a total of 11 rate hikes since March 2022 to tame record inflation that climbed to its highest level in more than 40 years, but the bank last month skipped an interest rate increase for the second time this year, keeping the federal funds rate unchanged between the 5.25%-5.5% target range -- the highest in 22 years.

"The economy has remained strong as the FOMC has tightened monetary policy. Real gross domestic product (GDP has been growing at a solid pace. Consumer spending has remained robust, and the housing sector appears to be continuing to rebound," Bowman said.

"The most recent employment report showed a labor market with solid job gains. The average pace of job gains over the past year has slowed somewhat and the labor force participation rate has also improved over the same time frame, a sign that labor market supply and demand may be coming into better balance," she added.

Bowman, who is a voting member of the Federal Open Market Committee (FOMC) this year, noted that she expects further interest rate increases will likely be needed to return inflation to the bank's inflation target of 2% in a timely way.