Top Fed Official Says More Monetary Tightening Needed

The US should continue tightening monetary policy to bring down inflation while assessing the impact of last month's financial turmoil on bank lending, a top official at the Federal Reserve said on Friday.

"Because financial conditions have not significantly tightened, the labour market continues to be strong and quite tight, and inflation is far above target, so monetary policy needs to be tightened further," Fed governor Christopher Waller told a conference in Texas during prepared remarks.

"How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions," he said.

Waller is a voting member of the rate-setting Federal Open Markets Committee (FOMC), which voted last month to continue raising interest rates to tackle inflation, which remains stubbornly above the Fed's long-term target of two percent.

The FOMC took this decision despite the banking turmoil unleashed when Californian high-tech lender Silicon Valley Bank (SVB) dramatically collapsed after taking on too much interest-rate risk.

SVB's collapse set off a chain reaction in the financial markets that led to the failure of another regional US bank and the merger under pressure of Swiss investment banking giant Credit Suisse with regional rival UBS.

The 25 basis-point rise by the FOMC was the ninth since March 2022, and brought the Fed's benchmark lending rate to between 4.75 and five percent.

Waller said on Friday that "a significant tightening of credit conditions could obviate the need for some additional monetary policy tightening."

His remarks echo previous comments from the Fed that suggested the fallout from SVB's collapse could mean less interest rate hikes were now needed.

But Waller cautioned against "making such a judgement" in real time.

"I would welcome signs of moderating demand, but until they appear and I see inflation moving meaningfully and persistently down toward our two percent target, I believe there is still work to do," he said. (AFP)