Bowman "Current Neutral Interest Rate Level"
Schmidt, Harker, and Collins Also Mention Cautious Easing
Expectations for Rate Cuts Weaken... 93% Forecast for Hold This Month
Members of the U.S. Federal Reserve (Fed) reiterated a cautious monetary easing stance, stating that the current benchmark interest rate is close to a 'neutral' level. The market sees a more than 30% chance that the Fed will cut rates only once this year.
Fed Governor Michelle Bowman said on the 9th (local time) at an event held in California, "Inflation has fallen significantly in 2023, but this progress appears to have stalled compared to last year," adding, "I continue to prefer a more cautious and gradual approach to policy adjustments."
She supported the Fed's 0.25 percentage point rate cut in December last year, describing it as "the final stage of policy recalibration."
She also expressed the view that the current rate level is close to neutral, neither stimulating nor slowing the economy. Bowman explained, "There remains concern that the current policy stance may not be as restrictive as some think," and "Considering the economy's continued resilience, the overall interest rate level and borrowing costs are unlikely to significantly restrain the economy."
Other Fed members also showed cautious attitudes toward further rate cuts.
Jeff Schmid, President of the Federal Reserve Bank of Kansas City, said, "Inflation is close to the target, and growth is showing sustained momentum," adding, "The economy is approaching a point where it neither needs restraint nor support, and policy should be at a neutral level." He further explained that policy should be adjusted gradually based on future data.
Patrick Harker, President of the Federal Reserve Bank of Philadelphia, in a separate speech that day, anticipated additional rate cuts this year but said now is the time to pause monetary easing. Susan Collins, President of the Federal Reserve Bank of Boston, also argued that the U.S. economy faces "considerable uncertainty" this year and called for more gradual rate cuts.
The remarks from Fed members on this day showed a significant contrast to those of Fed Governor Christopher Waller a day earlier. Waller, attending an event in Paris, France, stated, "Inflation will continue to progress toward the 2% target, and I support continued policy rate cuts in 2025."
The Fed will hold its regular Federal Open Market Committee (FOMC) meeting on the 28th-29th to decide the benchmark interest rate. The market sees a 93.1% chance that the Fed will keep rates unchanged this month. As monetary policy officials have consecutively indicated a cautious easing policy, market expectations for rate cuts have significantly diminished. According to the Chicago Mercantile Exchange (CME) FedWatch, the current federal funds futures market reflects a 32.2% chance of one rate cut this year, a 32.4% chance of two cuts, and a 22.9% chance of three or more cuts by the Fed.
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