Rate Cut? There’s No Rush

AN INFLUENTIAL FED GOVERNOR has raised the possibility of no rate reductions until the second half of this year, as inflation stays elevated and the economy appears to be growing moderately. “There’s no rush to move,” Gov. Christopher Waller said last night at the Economic Club of New York.

WHEN THIS YEAR BEGAN, the conventional wisdom — wrong as usual — was that the Fed would reduce the federal funds rate several times in 2024; some analysts predicted as many as six rate cuts this year. But inflation has not fallen to the Fed’s goal of 2%, and exuberance continues to grip the stock market.

WHAT THE ANALYSTS GOT WRONG is the level of hawkishness at the Fed, where Chairman Jerome Powell probably can’t get a unanimous vote from the Federal Open Market Committee on when to begin reducing rates. A leading hawk is Waller; another is Raphael Bostic, a voting member of the FOMC who recently said he anticipates lowering interest rates just once this year.

WALLER SAID RECENT INFLATION figures have been “disappointing” and said he wants to see “at least a couple months of better inflation data” before cutting. He pointed to a strong economy and robust hiring as further reasons why the Fed has room to wait to gain confidence that inflation is on a sustained path toward the 2% target.

“IN MY VIEW, it is appropriate to reduce the overall number of rate cuts or push them further into the future in response to the recent data,” Waller said. “I see economic output and the labor market showing continued strength, while progress in reducing inflation has slowed,” Waller said. “Because of these signs, I see no rush in taking the step of beginning to ease monetary policy.”

WALLER ADDED: “I continue to believe that further progress will make it appropriate for the FOMC to begin reducing the target range for the federal funds rate this year.” He added that “until that progress materializes, I am not ready to take that step.”

SOME ANALYSTS ARE STILL EXPECTING rate cuts to begin at the June 11-12 FOMC meeting, but others think it might not come until the July 30-31 FOMC session. After that, the next meeting isn’t until Sept. 17-18 — less than two months before the Nov. 5 elections.

FED OFFICIALS ARE ADAMANT that political considerations don’t affect their pre-election policies, and we believe them. But an initial rate cut on Sept. 17-18 could be awkward, so a July move is still possible. Our guess is that there will be one cut before the election and another before year-end — assuming the data warrants rate cuts, which suddenly is not a certainty in this Goldilocks economy.

Related: A Momentum Shift Toward Biden

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