Data remains prerequisite for easing among cautiously optimistic Fed officials

Six senior Federal Reserve officials from various regions made important statements today, Tuesday, adding to the ongoing discussion about future U.S. monetary policy. The economic agenda also featured presentations and discussions with Fed officials, including two voting members of the Federal Open Market Committee. The next Federal Open Market Committee meeting is scheduled for July 30-31 of this year.

The Federal Reserve is holding off on interest rate cuts until they see clearer signs of inflation slowing down. Chair Jerome Powell emphasized that they’ll base their decisions on incoming data, and they’ll address it meeting by meeting. However, there’s disagreement among Fed members about when exactly to change course.

The Fed left interest rates unchanged at 5.25%-5.5% after its June policy meeting, as expected, and the revised Summary of Economic Projections (SEP), or so-called dot chart, revealed that policymakers are divided on near-term interest rate expectations. Four of the 19 officials saw no rate cuts in 2024, seven expected a 25 basis point rate cut, and eight expected a 50 basis point rate cut.

Focus on inflation

Jerome Powell refrained from hinting at the timing of an interest rate cut in the press conference following the last meeting in June. Powell explained: “We need more confidence, more good inflation readings, but we will not be specific about the number of cuts we will start with.”

In the wake of the Fed’s May meeting and inflation data, the likelihood of the Fed leaving interest rates unchanged in September fell to 30% from 50%, according to the CME FedWatch tool. As the Fed’s blackout period ends after the June meeting, investors will pay close attention to comments. Policymakers in the near term.

Cleveland Fed President Loretta Mester said Tuesday that she would like to see “a longer string of good inflation data,” and Minneapolis Fed President Neel Kashkari said over the weekend that it would be a “reasonable expectation” for the Fed to wait. The Federal Reserve has until December to cut interest rates, adding that the central bank is in a very good position to obtain more data before making any decisions.

Meanwhile, Philadelphia Federal Reserve Bank President Patrick Harker took a cautious stance on Monday, indicating that the Fed may need to keep interest rates as they are for longer than markets currently hope.

On Tuesday, New York Fed President John Williams adopted a neutral voice, telling Fox Business that he expects interest rates to gradually fall as inflation eases. Boston Fed President Susan Collins has also closely followed Williams’ lead, noting Despite significant progress in the fight against inflation, price growth remains remarkably stubbornly above the Federal Reserve’s 2% inflation target.

Suzanne Collins reiterated the need to avoid overreacting to the latest inflation data, noting that it is still too early to say whether inflation is truly on track to return to 2% or not.

Balancing Act for Inflation Vs. Employment

Fed Governor Adriana Kugler continued on Tuesday, noting that progress on the inflation file is still gradual, but she highlighted that the US central bank expects only a slight decline in the US labor market as higher interest rates take on small parts of inflation. .

The Fed’s newest member, Alberto Muslim, the new president of the Federal Reserve Bank of St. Louis, joined a long line of statements by dovish Fed officials on Tuesday, highlighting its willingness to tighten policy further if inflation numbers become stuck above the Fed’s target. Federal Reserve’s 2%. The St. Louis Fed president also warned that it could take months or even entire quarters before Fed policy ends the battle against above-target inflation.

Like her colleagues, Dallas Fed President Lori Logan noted on Tuesday that recent data indicating slowing inflation is “encouraging,” but stressed that the Fed must remain cautious and patient regarding interest rate policy.

Chicago Fed President Austan Goolsbee concluded Fed officials’ official appearance on Tuesday, noting that the latest Consumer Price Index (CPI) inflation update was “excellent” and reiterating that he hopes to see more of the same in future inflation prints.

The Federal Reserve is feeling optimistic about the economic outlook, with members seeing no recession on the horizon and inflation expected to trend toward the central bank’s annual target of 2%. However, officials are in no rush to cut interest rates until they are convinced that progress in the inflation battle is sustainable.

The Federal Open Market Committee voted on June 12 to keep interest rates steady, with expectations indicating smaller interest rate cuts this year than last. The wait-and-see approach to adjusting interest rates remains the consensus. Boston Fed President Susan Collins said it was too early to say whether inflation was on track to return to the 2% target. Alberto Muslim, President of the Federal Reserve Bank of St. Louis, noted possible early signs of continued progress in inflation, but it takes more than a single data point to determine the trend.