By Michael S. Derby

(Reuters) – The recent ebbing in some key price increase indicators is encouraging but it is too soon to know whether inflation is back on a sustainable path back to 2%, Fed Vice Chair Philip Jefferson said on Monday.

“It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting,” Jefferson said in prepared remarks to the Mortgage Bankers Association conference in New York. “The better reading for April is encouraging.”

Jefferson, who described current monetary policy as restrictive, declined to say if he expected rate cuts to commence this year and instead noted, like his colleagues, that he will be carefully assessing incoming economic data, the outlook, and balance of risks.

Data last week, which showed consumer prices rose slower than expected in April and retail spending did not increase at all, both provided some welcome signs that the economy may be losing some steam.

But Fed policymakers, stung by a string of higher-than-expected inflation readings for the three months prior, remain cautious and want to make sure pricing pressures are fully on track back to the Fed’s 2% target rate before starting to cut its benchmark interest rate.

Housing inflation has been a particular thorn in the Fed’s side and Jefferson noted price changes to a main component of it, market rents, take a long time to pass through to a key gauge on inflation known as the Personal Consumption Expenditures index.

“This lag suggests that the large increase in market rents during the pandemic is still being passed through to existing rents and may keep housing services inflation elevated for a while longer,” Jefferson said.

The Fed’s next policy meeting is June 11-12 meeting. Traders in contracts tied to the central bank’s policy rate currently do not expect an interest rate cut until September.

(This story has been refiled to add Philip Jefferson’s first name in paragraph 1)