Former St. Louis Fed Chairman Brad recently stated that he expects the Fed to start cutting interest rates before inflation rates fall back to 2%, possibly as early as March.
As the most famous hawkish member of the Federal Reserve, Brad stepped down as Chairman of the St. Louis Fed last year and officially resigned on August 14th.
Brad predicts that the core inflation rate, excluding food and energy prices, will slow down to around 2% by October.
The data released last month showed that the Federal Reserve's most favored price indicator - the PCE price index in November last year - increased by 2.6% year-on-year, and the annual rate of core PCE was 3.2%, both far below the peak in mid-2022, but still far from the Federal Reserve's target of 2%. The next PCE report will be released this Friday.
Brad emphasized the challenges faced by the Federal Reserve and the importance of not making policy adjustments too late.
"They don't want to change their policies before the inflation rate reaches 2% in the second half of the year, do they? That would be too late," he said.
He said that if the inflation rate is between 2% and 2.5%, but the Federal Reserve has not yet adjusted policy rates, they may have to take radical action, such as lowering interest rates by 50 basis points at a meeting, which will be difficult.
He further stated that such a large rate cut may indicate that the central bank is dealing with economic weakness.
The Federal Open Market Committee of the United States will hold its first annual monetary policy meeting from January 30th to 31st, and the market generally expects the Federal Reserve to maintain interest rates unchanged for the fourth consecutive time.
The real focus of the current market is on the direction of interest rates at the Federal Reserve's March interest rate meeting and subsequent meetings. Wall Street has been lowering its bets on the Federal Reserve's March rate hike after the latest minutes of the meeting showed that officials are concerned about inflation accelerating again. The Federal Reserve's economic outlook shows that officials expect inflation to slow to 2% by 2025.