U.S. Markets

Fed officials say price pressures rising but no need to shift rate path

FILE PHOTO: Dallas Federal Reserve Bank President Robert Kaplan gestures during a news conference after of the True Economic Talks event in Mexico City, Mexico, July 14, 2017. REUTERS/Edgard Garrido/File Photo

AMELIA ISLAND, Fla. (Reuters) - As benchmark oil prices touched $70 a barrel, Federal Reserve officials on Monday said that rising U.S. inflation and wage pressures are not enough yet to prompt a change in the central bank’s rate outlook.

Speaking on the sidelines of an automation conference here, Atlanta Federal Reserve Bank President Raphael Bostic and Dallas Federal Reserve Bank President Robert Kaplan both said they would tolerate inflation a bit over the Fed’s two percent target, and were sticking with an outlook for two more interest rate increases this year.

Kaplan said that tariffs on metals and more expensive oil were increasing costs for U.S. businesses, and labor markets were tight.

“The short run cyclical forces are strengthening,” Kaplan said. But that will be offset by longer term trends that will keep prices lower and the path of the Fed’s target interest rate “flatter than we are historically accustomed.”

Bostic said that if current trends continue, “we are going to see wages start to go up because we will truly have a scarcity of labor.” However, he said, “I am not sure there is a big signal” in how wage increases will feed through to inflation.

Like other Fed officials, Bostic said he would tolerate “some overshoot” in the 2 percent inflation target, hewing to the Fed’s “symmetric” view that after years of price increases that were below target, the central bank should not overreact to inflation slightly over its goal.

In separate comments in Virginia, new Richmond Federal Reserve Bank President Thomas Barkin would not comment on his rate views. But he did say that wage pressures do not seem out of hand, and that he feels inflation is being tempered by structural changes such as the influence of Inc and other e-commerce companies.

The Fed raised interest rates in March and is expected to do so again when it meets in June.

Reporting by Howard Schneider; editing by Diane Craft