"There is no clear need to adjust monetary policy in the short term." (John Williams, President of the Federal Reserve Bank of New York)
"There is less need to ease policy than previously thought." (Susan Collins, President of the Federal Reserve Bank of Boston)
Officials of the U.S. Federal Reserve (Fed) continue to maintain a cautious stance on cutting the benchmark interest rate. This is due to concerns about a possible inflation rebound, known as the last mile risk?the final stretch before reaching the target. However, they still see the possibility of a rate cut within this year.
John Williams, regarded as the third most influential figure within the Fed and President of the Federal Reserve Bank of New York, stated at a symposium held in New York on the 11th (local time), "Monetary policy is currently well positioned, and there is no clear need to adjust monetary policy in the very short term." He assessed that neither a rate cut nor a rate hike is urgent at this point, and that it is necessary to monitor the situation further.
Williams said that despite inflation indicators exceeding expectations, inflation will gradually slow to 2%, though "there may be fluctuations during the decline." He emphasized, "We will focus on indicators, economic outlook, and risks while evaluating the appropriate monetary policy path." He added, "If things proceed as expected, it would be reasonable to gradually cut rates starting this year," forecasting that the inflation rate will fall to 2.25?2.5% within this year and that the price stability target of 2% could be achieved next year.
On the same day, President Collins also emphasized caution, saying, "It may take more time to determine whether the economy is on a sustained path toward the 2% inflation target." In a speech at the New York Economic Club, Collins stated, "Recent indicators have not materially changed the outlook, but uncertainty about timing and the uneven nature of the disinflation process have increased the need for patience," adding, "This means there is less need to ease policy this year than previously thought." She identified the end of this year as a later timing for a rate cut than the market expects.
Thomas Barkin, President of the Federal Reserve Bank of Richmond, attending an event in Washington D.C., said the latest inflation indicators "have not yet reached the level we want." He noted that inflation is moving toward the correct range in the long term, but recent data have not increased confidence that disinflation is spreading throughout the economy.
These remarks drew attention as they came shortly after the release of the U.S. March Consumer Price Index (CPI) inflation rate, which significantly exceeded expectations and dampened hopes for a rate cut. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in nearly an 80% chance that the Fed will keep rates steady at 5.25?5.5% through June. This is a marked increase from about 34% a week ago.
Previously, the Fed maintained the possibility of three rate cuts within this year in its March dot plot, but recently, officials have increasingly suggested only two, one, or even no cuts might occur. Given robust economic data and concerns about inflation rebounding, the view that the Fed has no reason to rush rate cuts is gaining traction. Accordingly, the market expects that the year-end rate forecast in the dot plot released after the June Federal Open Market Committee (FOMC) meeting may be revised upward. However, the March Producer Price Index (PPI) released on the same day rose 0.2% month-over-month and 2.1% year-over-year, falling short of market expectations.
Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), warned of the risk of inflation rebounding and cautioned central banks worldwide against the dangers of premature rate cuts. In an appearance on CNBC, she said, "While the Fed is maintaining expectations for rate cuts by the end of the year, it should not rush into cuts until the data indicate that it is possible."
Meanwhile, on the same day, the European Central Bank (ECB) kept its key policy rates unchanged but hinted at the possibility of a rate cut in June. The ECB stated, "If we gain confidence that inflation is consistently converging to the target, it would be appropriate to lower the restrictive level of monetary policy."
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