Three Fed officials have said that the speed of introducing interest rate cuts will depend upon what new information the economic data will bring. This consistency shows that the plan to reduce borrowing costs might not follow the same pattern as it has done in the past cycles.
Fed Officials View on Interest Rate Cuts
Susan Collins, Boston Fed Bank President recently said on Wednesday that the Federal Reserve will probably start decreasing its benchmark overnight lending rate later this year.
In her speech at Dartmouth College in Hanover, New Hampshire, she said that she thinks it will probably be the right time to start making policy adjustments later this year. However, before starting on this decision, she suggested that a careful, forward-thinking approach should be taken before lowering rates.
She added that they should offer the needed flexibility to handle risks that might rise while supporting stable prices and maximum employment.
According to Collin, the recent rise in employment and prices might lead to the Fed’s journey of reaching the 2% target rate might be bumpy.
Collin added that it is important to understand the journey toward the Fed’s goals, even if it is not always consistent, however, she expects all the data to give uniform signals to be too high an expectation.
In an interview with Axios, New York Fed President John Williams believes that the central bank will introduce interest rate cuts “later this year,” even though the inflation data and the job market numbers of January were stronger than anticipated.
In the interview, he said that his general view on the economy has not shifted because of just data from January. He pointed out that the road of inflation toward the 2% target of the Fed might have some ups and downs but otherwise, both the inflation and the economy are moving “in the right direction.”
William added that at some point, it will be okay to ease up on the tight monetary policies that are there right now by the end of the year. His views are similar to other Fed officials who have been a bit cautious recently about introducing rate cuts.
Raphael Bostic, Atlanta Federal Reserve President has predicted that the policymakers will probably start introducing rate cuts in the third quarter of this year.
He said that he is someone who relies on data and considering the unexpected improvements that happened in inflation and economic activity, he has adjusted his projection to make the federal funds rate normal by the third quarter of this year.
He had earlier predicted the possible federal funds rate cuts to happen in the fourth quarter of the year. He added that if he keeps seeing more negative surprises in the data, he might be okay to normalize the federal funds before the third quarter. However for that to happen, he will solid evidence of the declining inflation rate.
In the past, the Fed had quickly cut interest rates during recessions but this time, the economy is different as people keep spending despite higher loan rates. Moreover, the unemployment rate is also low at 3.7%, just like the time when the Feds started raising rates in March 2022.
With the US central bankers gathering next on March 19-20, the benchmark lending rate will likely be between 5.25% to 5.5%. There have been predictions of a possible rate cut in June, but not next month even though the Fed officials had suggested three quarter-point cuts for 2024 in December 2023.
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