US Fed officials steer cautiously toward rate cuts
Federal Reserve officials, heartened by recent data, are looking for further confirmation that inflation is cooling and for any warning signs from a still-strong labor market as they steer cautiously toward what most expect to be an interest rate cut or two by the end of this year.
Outlining a litany of reasons for optimism that inflation is back on track to the US central bank’s 2 percent goal after stalling earlier this year, Fed Gov. Adriana Kugler said on Tuesday she believes monetary policy is “sufficiently restrictive” to ease price pressures without causing a significant deterioration in the job market.
“If the economy evolves as I am expecting, it will likely become appropriate to begin easing policy sometime later this year,” she told the Peterson Institute for International Economics in Washington. The latest data, including a government report showing consumer prices did not rise at all from April to May, is “encouraging,” she said.
While more progress is required, Kugler said, “I believe economic conditions are moving in the right direction.”
The Fed last week kept its benchmark interest rate in the 5.25 percent-5.5 percent range and released updated economic projections that showed its officials had pared back their expectations for rate cuts this year, to one from the three seen in March, after stronger-than-expected inflation data in the first months of 2024.
Most analysts equate fewer rate cuts with a later start to them, particularly after Fed Chair Jerome Powell said the first reduction in borrowing costs will be “consequential” because it could reset market expectations.
Chicago Fed President Austan Goolsbee called the latest inflation data “excellent, after a few months of less-excellent numbers, so hopefully we’ll see more like that.”
Last year a surge in the supply of both workers and goods allowed inflation to drop quickly without pushing up on unemployment, a “magic” combination that may still have room to run this year, Goolsbee said.
Other Fed officials sounded a little more skeptical.
“We’re in a good position, we’re in a flexible position to watch the data and to be patient,” Dallas Fed President Lorie Logan said at an event in Austin, Texas. While recent data showing inflation is cooling is “welcome news,” there must be “several more months of that data to really have confidence in our outlook that we’re heading to 2 percent.” (Reuters)