Recent macroeconomic data in the United States have shown that the economy continues to strengthen, making the prospect of a rate cut in March increasingly slim. Fed Chairman Jerome Powell also said in an interview last week that he might wait until March before cutting interest rates, expecting three rate cuts this year, which is lower than market expectations. However, Chicago Fed President Goolsbee reiterated on Monday that he does not want to rule out a rate cut in March, but needs to see more data showing progress in the fight against high inflation. Minneapolis Fed President Kashkari said the Fed had time to assess economic data before cutting rates, arguing that the current interest rate policy may not be as tight as expected and that the neutral rate may have risen. The president of the Atlanta Fed said that the Fed's long-term response to the U.S. unemployment rate has fallen significantly.
Fed Chairman Jerome Powell also said in an interview last week that he might wait until March before cutting interest rates, expecting three rate cuts this year, which is lower than market expectations. In contrast, Chicago Fed President Goolsbee's statement was relatively **. In an interview on Monday, he said that he did not want to rule out a rate cut in March, but needed to see more data showing progress in the fight against high inflation.
"We've received very good inflation data reports for seven months in a row, almost all of which are falling near or even below the Fed's target," Goolsbee said. So, if we continue to receive that kind of data, I believe we should be well on our way to normalizing interest rates. ”
Goolsbee said he doesn't want to commit to a concrete decision just weeks before the March meeting, nor does he speculate on the possibility of a 50 basis point rate cut at a time by the FOMC.
He also said that the inversion of the U.S. Treasury yield curve is not a reliable signal of a recession in the U.S. right now, and that strong employment data does not mean that the labor market is overheated. Goolsbee said credit conditions have tightened over the past 18 months or so.
Minneapolis Fed President Kashkari also said on Monday that policymakers have time to assess the data to be released before cutting interest rates, a statement that suggests that the economic situation has changed after the pandemic and that the neutral rate may have risen.
Kashkari said in a February 5 article at the bank** that "the neutral policy rate has risen at least during the post-pandemic economic recovery, giving the Federal Open Market Committee (FOMC) time to complete its assessment of economic data before making a decision to cut rates, reducing the risk of excessive policy tightening."
Kashkari wrote that supply-side factors have made a "significant contribution" to reducing inflation to near the Federal Reserve's 2% target, as evidenced by resilient economic growth and a strong labor market, Kashkari wrote. Still, he said, rate hikes have played an "extremely important" role in keeping long-term inflation expectations low.
The data showed that a measure of core inflation, which excludes food and energy**, slowed to its lowest level in nearly three years in December, with core CPI rising 19%, below the Federal Reserve Bank's target of 2%. At the same time, the unemployment rate has remained near multi-decade lows, and strong consumer demand has fueled healthy growth.
"This set of data suggests that the current monetary policy stance, including the current level and expected path of federal** interest rates and balance sheets, may not be as tight as we anticipated, given the low-neutral rate environment that existed before the pandemic," Kashkari wrote. ”
Kashkari, who does not have voting rights this year, wrote a series of articles in 2022 and 2023 during the Federal Reserve Bank earning interest in an effort to bring inflation down. In an article published last September, he argued that there was a 60% chance of a soft landing for the US economy. But Kashkari also warned of a scenario where inflation could become entrenched, forcing the Fed to tighten monetary policy further to fully restore stability.
Meanwhile, Atlanta Fed President Bostic said on Monday that the Fed's long-term approach to the U.S. unemployment rate has fallen significantly, given signs of tightening in the labor market in recent years.
He noted that in 2017, full employment was considered to be the unemployment rate at 4About 5%, but "the situation has changed". Excluding the pandemic-induced recession, the unemployment rate has been below 4 for nearly seven years5%。
Bostic said there are several potential structural changes that the pandemic could bring to the labor market, including remote work. He said wage growth across industries is returning to a more normal pattern after experiencing surges during the pandemic.
However, Bostic did not comment on the outlook for interest rates in his speech.
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