What impact does the latest inflation indicator released in the United States have on the Federal Reserve's decisions? After the PCE index in the United States hit its largest increase in 11 months in January, the statements of senior Federal Reserve officials seem to be becoming increasingly "stable".
On Thursday (February 29th), the United States released its January PCE price index, which is the Federal Reserve's most favored inflation indicator. The data shows that the core PCE price index, excluding the volatile food and energy sectors, increased by 0.4% month on month, which is in line with expectations but the largest increase since February 2023.
John Williams, the "number three figure" of the Federal Reserve and Chairman of the New York Fed, reiterated his previous position late Thursday, saying, "I do expect us to cut interest rates later this year. As inflation decreases and the economy becomes more balanced, we will bring interest rates back to more normal levels, which makes sense."
However, he also emphasized that there is "no sense of urgency" in the Federal Reserve's interest rate cuts.
He pointed out, "I think our monetary policy is in place, and what we really need to do now is to make the inflation target of 2% more credible."
Regarding whether monetary policy will tighten again, Williams believes that the current economic situation will not prompt the Federal Reserve to raise interest rate targets again, but unexpected circumstances cannot be ruled out.
"Based on what I see now, we don't need to further tighten monetary policy. However, if the outlook changes or if there are significant changes in the economic situation, we will have to reconsider (raising interest rates)."
Not in a hurry to cut interest rates, mainly based on data
Williams' speech echoes his speech on Wednesday. Williams pointed out on Wednesday that "the event and speed of interest rate cuts 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 fact, recent Federal Reserve officials have mostly stated that they are not in a hurry to lower interest rates and will closely monitor upcoming data to evaluate appropriate policy paths.
On Thursday, Cleveland Fed Chairman Loretta Mester emphasized that given stable economic growth and a healthy job market, the Fed has the opportunity to remain patient.
She still expects three interest rate cuts in 2024, consistent with her first estimate made last year, stating that "the economy and monetary policy are currently in a good state.".
In addition, Mester's colleague and Atlanta Fed Chairman Raphael Bostic once again urged people to remain patient in his latest speech on Thursday, reiterating his prediction of interest rate cuts this summer.
"The latest released inflation data indicates that this will not be an unstoppable process and will not immediately reach 2%, but there will be some turbulence," he said.
Investors have also begun to compromise under repeated statements from Federal Reserve officials. The expectation of "starting interest rate cuts in March" has faded away, and it is now widely expected that the Federal Reserve will lower its current interest rate target range of 5.25% to 5.5% later this year.