Fed Governor reiterates that rate cut is coming

Fed Governor reiterates that rate cut is coming

A key Federal Reserve official on Tuesday laid out a case for systematically lowering interest rates sometime this year once the economy comes into balance and inflation calms — though he acknowledged that the timing of those cuts remains uncertain. .

Christopher Waller, one of the Fed’s seven Washington-based officials and one of 12 policymakers who vote at its meetings, said during a speech at the Brookings Institution on Tuesday that he saw a case for cutting interest rates in 2024.

“The data we have received over the past few months is allowing the committee to consider a policy rate cut in 2024,” Mr. Waller said. Noting that the risk of higher inflation remains, he said, “I feel more confident that the economy can continue on its current path.”

Mr Waller suggested the Fed should lower interest rates if inflation is low. Because interest rates do not take into account price changes, otherwise so-called real rates that are adjusted for inflation will climb as inflation falls, placing a greater burden on the economy.

“The healthy state of the economy provides flexibility to lower the policy rate while maintaining the real policy rate at an appropriate level,” Mr Waller said in his speech.

The Fed governor said that when the policy rate is cut, “it should be done systematically and carefully.”

America’s central bankers are considering their next policy steps after battling high inflation for two years. Officials raised borrowing costs from near zero in March 2022 to between 5.25 and 5.5 percent this summer. But now, inflation continues to decline, and central bankers are beginning to consider when and by how much they might cut rates.

While officials want to make sure they completely curb runaway inflation, they also want to avoid squeezing the economy so much with higher borrowing costs that they cause a painful recession.

Investors have started investing in it Good possibility of rate cut As March begins, however, some economists have warned — and officials have signaled — that they are considering an imminent move too certain to bet.

“March is probably too early for a rate cut in my estimation,” said Loretta Mester, president of the Federal Reserve Bank of Cleveland. recently said Interview with Bloomberg Television.

When Mr Waller was asked on Tuesday whether he would make the mistake of waiting too long rather than making the cut so soon, he said that “in the big scheme of things, even if it’s six weeks later – it’s hard to believe.” That this is happening will have a huge impact on the state of the economy.”

Mr Waller said that although his view of the policy outlook is consistent with the Fed’s December estimate that they would cut interest rates three times this year, “the timing of the cuts and the actual number of cuts in 2024 will depend on what is coming.” ” data.”

He said the timing of the first rate cut will depend on the Fed’s policy-making committee.

Officials want to see evidence that progress is continuing, he said, “and I’m confident it will, but we need to see that before we start making decisions.”

Mr Waller suggested he would keep a particularly close eye on the revision of inflation data due to be released in early February.

He said, “My hope is that the amendments confirm the progress we have seen, but good policy is based on data, not hope.”

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