Cleveland Fed President Loretta Mester, a voting member of the Federal Reserve this year, said on Monday that she is considering abandoning her previous forecast that the Fed will cut interest rates three times this year.

As recently as early April, Mester had “put on paper” her forecast for three rate cuts in 2024, but now she has doubts. “I’ve said publicly before that my median forecast was three rate cuts,” Mester said in an interview with Bloomberg TV. “Based on what I’m seeing in the economy right now, I don’t think that’s appropriate.”

She noted that inflation risks have risen since the first quarter and said the real economy is "a little stronger than I expected." She said policy is restrictive but Fed officials need to wait for more evidence about the path of inflation before adjusting interest rates.

Mester stressed that she has not yet decided where her "dots" (interest rate forecasts in the dot plot) will fall. The Fed will release a new rate forecast "dot plot" after its next meeting on June 11-12. The previous forecasts of 19 Fed officials showed that the median was close to three rate cuts this year. Ten officials expected three rate cuts, while nine officials supported two or fewer.

Raphael Bostic, president of the Atlanta Fed, said in a speech on the same day that the U.S. economy is slowing down, albeit slowly, but this should help inflation continue to gradually cool down.

“We’ve had a lot of conversations with business leaders, and they’ve all told us that economic growth is slowing,” he said Monday. “My outlook is that inflation will continue to decline this year and into 2025. However, the pace at which prices decline will be slower than many people expect.”

Bostic said the key question is when the Fed can be sure inflation is firmly on a 2% path, rather than focusing on how many rate cuts it makes this year. "I think it's going to be a while before we know for sure," he said. Bostic said the labor market is weaker than it was 12 months ago, but not weak.

Bostic said there was no change in his forecasts for the Fed’s interest rate policy. He has said he expects one rate cut this year, in the October-December quarter.

Fed Vice Chairman Philip Jefferson said in a separate speech that Fed economists expect the Fed's favorite inflation indicator, the core personal consumption expenditures index (PCE), to grow at an annual rate of 4.1% in the first four months of this year. This is far higher than the 12-month average of 2.75%. The United States will release PCE data for April on May 31.

“It’s important not to focus too much on one data point,” Jefferson said of the recently released consumer prices. “It’s too early to tell if this is a harbinger of what’s going to happen in the future, but it’s a good sign for us.”

Also on Monday, Michael Barr, the Fed's vice chairman for supervision, said the Fed should keep interest rates stable. Mary Daly, president of the San Francisco Fed and a member of this year's voting committee, said she has not yet gained confidence that inflation will continue to fall to 2%. She expects U.S. housing inflation to improve, but not rapidly.

Tim Duy, chief U.S. economist at SGH Macro Advisors, said Fed officials have not lost confidence in the basic narrative that rate cuts will eventually be appropriate, even if they take a little longer than expected. Traders are currently pricing in about 40 basis points of rate cuts by the end of the year, with the first cut coming in November.

Article forwarded from: Jinshi Data