In a speech yesterday, Fed Governor Lisa Cook discussed her considerations for the future path of monetary policy, weighing the implications of stronger economic momentum against potential headwinds from recent banking developments.

Cook explained, “On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do.”

Regarding Fed’s strategy on rate hikes, Cook mentioned that FOMC has been raising rates in smaller increments, aiming for a sufficiently restrictive monetary policy to return inflation to 2% over time. She emphasized the benefit of taking smaller steps, as it allows Fed to observe economic and financial conditions and evaluate the cumulative effects of their policy actions.

Cook also touched on FOMC’s recent adjustments to its forward guidance on the path of the policy rate in its March statement. The committee shifted from anticipating “ongoing increases” to stating that “some additional policy firming may be appropriate.” Cook believes this communication is suitable as Fed seeks to calibrate monetary policy amid uncertainty about the economic outlook.

Full speech of Fed Cook here.

St. Louis Fed President James Bullard told Bloomberg TV that OPEC’s production cut was “a surprise.” But he added, “whether it will have a lasting impact I think is an open question.”

He noted the challenges in tracking oil prices, admitting that fluctuations “might feed into inflation and make our job a little bit more difficult.”

Regarding the current state of the global economy, Bullard pointed out that he had already expected higher oil prices given China’s faster-than-anticipated recovery and Europe narrowly avoiding a recession. He also cited strong US data as a bullish factor for the oil market.

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.