Federal Reserve officials on Tuesday stressed the need for more evidence of cooling inflation before lowering interest rates, with several policymakers offering insights on the potential timing of such a cut.
Fed Governor Kugler said it might be appropriate for the Fed to cut interest rates "later this year" if economic conditions develop as she expects, while St. Louis Fed President Moussallem said in his first major policy speech that it could take "several quarters" for data to support a rate cut.
Neither New York Fed President John Williams nor Richmond Fed President Thomas Barkin offered a specific time frame for rate cuts, but all officials stressed the importance of economic data on the future path of policy.
Chicago Fed President Goolsbee said the latest CPI number "is an excellent inflation number after a few months of not-so-excellent numbers. So hopefully we'll see more of that." Dallas Fed President Logan said: "We need to see a few months of data to really be confident in our outlook that we're moving toward our 2% inflation target."
Policymakers have kept borrowing costs at two-decade highs for nearly a year, and they appear in no hurry to lower them. Just last week, Fed officials projected just one rate cut in 2024, down from three in March, according to the median forecast.
After a rapid cooling of price pressures in the second half of 2023, inflation surprised Fed officials by snapping back in the first quarter of this year. While recent price data have been encouraging, policymakers remain cautious. Boston Fed President Collins reiterated that point on Tuesday, saying it was important not to "overreact to one or two months of good news."
Asked later in the day in an interview whether she would consider cutting rates once or twice this year given current conditions, Collins said: "I could imagine it being both ways." She added: "Looking ahead, my view on how much accommodation might be appropriate this year has been somewhat reduced as I look at the data."
Policymakers’ caution was particularly evident in quarterly forecasts released last week, with four officials predicting no rate cuts in 2024.
"I would need to see a period of favorable inflation, slowing demand, and expanding supply before I would be confident that a reduction in the target range for the federal funds rate would be appropriate," Mousallem said. "These conditions may take months, and more likely quarters, to manifest."
A recent slew of economic reports have shown a mixed picture for the economy, with consumers pulling back on spending despite strong job gains and inflation cooling after unexpectedly accelerating in the first quarter. Data on Tuesday showed U.S. retail sales barely rose in May and data for prior months were revised down, while payrolls surged by 272,000 in the month.
“I believe the current stance of monetary policy is sufficiently restrictive to help cool the economy and return inflation to 2 percent without causing a sharp contraction in economic activity or a significant deterioration in the labor market,” Kugler said.
The article is forwarded from: Jinshi Data