Gulzby Governor "Interest Rates Must Be Lowered Quickly"
Daily Governor "Inflation Is Not Stable Yet"
As expectations rise that the U.S. Federal Reserve (Fed) will cut interest rates in September, officials' remarks remain divided. Austan Goolsbee, President of the Chicago Federal Reserve Bank, warned that delaying rate cuts too long could lead to a recession, while Mary Daly, President of the San Francisco Federal Reserve Bank, stated that inflation has not yet stabilized and urged patience.
On the 18th (local time), President Goolsbee said in an interview with Yahoo Finance, "If monetary policy remains restrictive as it is now, we could lose the 'golden path.'" He analyzed that if rates are cut too late, the economy could deviate from the so-called golden path, which lowers inflation without a significant rise in unemployment. He also pointed out that when looking at the real interest rate, which excludes inflation from the nominal rate, it is at its highest level in decades, and the current economy is not overheated.
However, he refrained from specifying the exact timing of a rate cut. When asked if there was a possibility of a rate cut at the end of this month or in September, President Goolsbee did not respond. Instead, he said, "The more (inflation) data we collect, the clearer the path to the 2% inflation target will become."
Regarding the labor market, he assessed that the overheating is cooling down and moving toward balance. However, he added that the cooling of the labor market should not intensify excessively during this process.
Currently, the market expects the Personal Consumption Expenditures (PCE) price index, an inflation indicator closely watched by the Fed, to ease to 2.5% by June. The monthly PCE inflation rate has shown a slowing trend, with 2.7% in April and 2.6% in May.
On the previous day, Fed Governor Christopher Waller said, "We are approaching a market where policy rates will need to be cut, although we have not yet reached the final destination." Fed Chair Jerome Powell also signaled dovishness on the 15th, stating, "We have increased confidence that inflation is moving down toward 2%."
On the other hand, President Daly urged patience regarding rate cuts. At a Dallas Fed event that day, she said, "Inflation indicators have been positive this year," but diagnosed, "We have not yet reached a level that sustainably returns to the 2% target." She also stated, "Current inflation is not stable," and emphasized, "We need confidence that we are on a sustainable path to achieving the (inflation) target."
President Daly evaluated that the current monetary policy is balanced. She warned, "If we act too early to normalize rates, there is a risk that inflation will become entrenched above the target," but also cautioned, "It is also risky to hold on too long and shake the labor market." She explained that policy mistakes should be avoided by balancing between moving too early and moving too late.
President Goolsbee will exercise voting rights as an alternate member at the Federal Open Market Committee (FOMC) meeting at the end of this month. President Daly holds voting rights at the FOMC this year.
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