The Federal Reserve officials are reconsidering their previous forecast of three rate cuts this year, with some now seeing rates staying above 5%. The stakes are high, as cutting rates too soon risks losing control of inflation, while waiting too long could harm the economy. Various officials have differing opinions on when the Fed should cut rates, with Atlanta Fed President Raphael Bostic suggesting only one cut this year. Federal Reserve Chairman Jerome Powell has not publicly shared a timeline for rate cuts but will base the decision on economic data.
Inflation readings have been higher than expected, with rising shelter costs and gas prices contributing to consumer price increases. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, showed persistent price pressures. Economists believe inflation will gradually drift lower, but there are concerns about the economy if inflation remains high. Powell is waiting for more data to determine if inflation is heading towards the 2% target before making any rate cuts this year.
Powell stated that the recent inflation readings may have been skewed by seasonal factors, and further data is needed before any rate cuts. Fed Governor Lisa Cook emphasized the need for a careful approach to policy adjustments to ensure sustainable inflation return to 2%. Chicago Fed President Austan Goolsbee believes three cuts this year are in line with his thinking, while Powell emphasized that waiting for inflation to return to the target before cutting rates would be too late.
The long and variable lags of monetary policy are a key factor in the decision-making process for rate cuts, with Fed Governor Christopher Waller scheduled to discuss the economy in New York. Waller has highlighted the importance of inflation’s descent for possible rate cuts. Powell will also participate in a discussion on monetary policy hosted by the San Francisco Fed later in the week. Overall, the Federal Reserve is closely monitoring inflation data and economic indicators to determine the appropriate timing for any future rate cuts.
