Three Federal Reserve officials stated on the same day that the pace of interest rate cuts will depend on the upcoming economic data, and hinted that the path of this rate cut may be different from the previous rate reduction cycle.
Boston Fed Chairman Susan Collins and New York Fed Chairman John Williams stated that the Fed's first rate cut "later this year" may be appropriate, while Atlanta Fed President Raphael Bostic said he currently expects the Fed to cut rates at some point this summer.
At the same time, they also provided some insights on how the Federal Reserve will evaluate the timing of future interest rate cuts.
Williams told reporters on Wednesday, "Regarding interest rate cuts and speed, it must be driven by economic conditions and inflation. It will not be based on calendar time or have a specific fixed schedule, but will focus on data."
In recent times, policymakers have repeatedly expressed their desire to see more evidence of steady inflation decline before interest rate cuts, especially considering the higher than expected Consumer Price Index (CPI) released earlier this month. The above statement further indicates that economic data is the main driving force behind the pace of interest rate cuts.
"We always say that we will rely on data," Bostic said. "These data will become our guide, telling us to what extent, how quickly, and when we should truly change our policies."
In the past, the Federal Reserve typically quickly lowered interest rates to cope with economic downturns. But this time, the fundamentals of the economy look very different. Despite rising borrowing costs, consumers continue to consume, and the unemployment rate remains stable at a historic low of 3.7%. This is almost identical to the situation when the Federal Reserve started raising interest rates in March 2022.
Although several policymakers, including Bostic, have stated that they expect inflation to continue to fall to the central bank's target of 2%, they do anticipate that the process will be bumpy.
Bostic said, "I still see some signs that this (inflation) will not reach 2% soon. As long as we can reach the target, I am willing to remain patient."
Policy path
The next Federal Reserve interest rate meeting will be held from March 19th to 20th and is expected to continue without action. The market has currently overturned expectations for the first rate cut in March and postponed it to June. Federal Reserve officials predicted in their December chart that interest rates would be lowered three times in 2024, each by 25 basis points. Williams stated that this estimate is still "reasonable".
Collins said, "It may be appropriate to start relaxing policies later this year. When this happens, an orderly and forward-looking approach to gradually lowering interest rates should provide necessary flexibility for risk management while promoting stable prices and maximum employment."
She also stated that further deceleration of inflation may require further slowdown in economic activity.
"But there is still considerable uncertainty about when economic activity may slow down and how much it will slow down," she added.
Collins refers to the strong employment growth in January, and the consumer price index for that month; Quota; High; Quota;.