Cleveland Fed President Loretta Mester said on Tuesday that she is looking forward to interest rate cuts in 2024, but she ruled out the possibility of rate cuts in the upcoming policy meeting in May.
Fed President Loretta Mester on Rate Cuts in 2024
Fed President Loretta Mester has said that the outlook for rate cuts in 2024 is higher in the long run than policymakers had previously thought it to be. Similarly, her colleague, San Francisco Fed President Mary Daly, also said that the rate cuts in 2024 will only take place when there is more solid evidence that inflation has been kept in check.
Both officials stressed the progress made in controlling inflation while the economy continued to grow. If this trend persists, rate cuts in 2024 are likely, although no specifics were provided on when or to what extent.
Fed President Loretta Mester said that the most probable scenario for inflation is that it will gradually decrease to the 2% target. However, she needs more data to increase her confidence before a speech in Cleveland.
She added that inflation data will offer insights into whether certain higher-than-anticipated figures this year were temporary or an indication that progress on inflation is slowly decreasing.
Fed President Loretta Mester further said that she does not anticipate having sufficient information by the time of the FOMC’s next meeting to assess decreasing inflation.
These comments about possible rate cuts in 2024 come two weeks after the Federal Open Market Committee (FOMC) once again decided to keep its key overnight borrowing rate within a range of 5.25% to 5.5%, where it has stayed since July 2023. The statement released after the meeting was similar to Mester’s remarks, stating that the committee needs more proof that inflation is moving towards the 2% target before considering rate cuts in 2024.
Expectations of Rate Cuts in Fed’s May Meeting
Fed President Loretta Mester, currently a voting member of the FOMC but will reach her 10-year term limit in June, said that a rate cut at the 30 April -1 May FOMC meeting is unlikely. According to futures traders, the Fed is expected to begin easing in June and cut rates in 2024 by three-quarters of a percentage point by the end of the year.
San Francisco Fed President Daly said three rate cuts in 2024 are a good way to start; however, she added that nothing is certain. She said that predicting three rate cuts in 2024 is not a promise; however, they are moving in that direction, but it will not happen immediately, nor will it be everlasting.
Regarding rate cuts in 2024, Fed President Loretta Mester has said that the long-term federal funds rate will be higher than the previously held expectation of 2.5%. Instead, she sees the “neutral” or “r*” rate at 3%, which is the level where policy is considered neither restrictive nor stimulative.
Following the March meeting, the projection for the long-run rate increased to 2.6%, indicating that other members are leaning towards a higher rate. Fed President Loretta Mester said the rate was extremely low when the Covid pandemic struck, leaving the Fed with little room to stimulate the economy.
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