Loretta Mester, Cleveland Fed President, said on Thursday that the recent data on inflation does not change her expectation of three rate cuts in 2024.
Fed’s Mester Views On Rate Cuts in 2024
In an exclusive interview with Yahoo Finance on Thursday, Fed’s Mester said that the month-over-month increase in the PCE day released on 29 February does not change her view that the inflation is slowly going down toward the Fed’s 2% target. But it does indicate there’s more work for the Fed to do to reach that 2% goal fully.
Mester is still forecasting three rate cuts in 2024, a prediction she initially made in December. “At the moment, that forecast seems appropriate based on how I see the economy progressing,” Mester stated.
However, she added that the data does show that more effort is required from the Fed to reach their 2% inflation goal fully. She added that she is still looking forward to three rate cuts in 2024, which are the same as Asher’s earlier prediction in December 2023.
She added that, at the moment, that forecast was appropriate based on how she sees the economy progress.
The recent remarks of Fed’s Mester came after the release of the Fed’s preferred inflation measure, the PCE Index, on Thursday morning. The release of the core Personal Consumption Expenditures (PCE) index is important as it helps to understand inflation and does not include food and energy costs.
Additionally, the central bank closely follows the performance of the PCE index, making it one of the vital measures out there.
In January, the core PCE index increased by 2.8% compared to the previous year, which has been the slowest rise since March 2021. However, compared to the previous month, it has gone up by 0.4%, the highest increase since January 2023.
The annualized rate of price increases was below the Fed’s 2% target for two months in a row before the release of the PCE data on Thursday. Now, after the January data, it was seen that the six-month annualized PCE price increase is now at 2.5%.
Mester is one of the voting members on the Fed’s rate-setting committee and has said that the central bank can afford to wait a bit longer because the country’s economic growth is strong and the job market is good.
She said that she believes that everything is going in the right direction and that the economy and the monetary policy are in a good place.
Several Fed officials, including Fed Chair Jerome Powell, have said it is important to be patient about rate cuts, especially since some data about inflation were higher than expected and job numbers remained strong.
Several other Fed officials added that the journey towards the 2% inflation target will not be a smooth one.
Both the Consumer Price Index (CPI) and the Producer Price Index (PPI) were higher in January than economists predicted. Investors had initially predicted six rate cuts from March but have now adjusted their numbers to six starting in June.
Raphael Bostic, Atlanta Fed President and a colleague of Mester, also said his views were in the same line as those of Mester. In his speech on Thursday, he advised the people to be patient and talked about potential rate cuts this summer.
Bostic said that the recent data on inflation numbers, including the PCE data, show that the road to reaching the Fed’s 2% target won’t be quick and easy. He added that there might be a lot of bumps on the way.
Mester told Yahoo Finance that she expects that the demand will go down as the high interest rates are slowing down the economy. She also added that she has noticed that consumers are spending money more thoughtfully, and business investment has decreased. As growth slows down, she believes inflation will return to normal levels.
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