Various recent macroeconomic data from the US show that the economy continues to strengthen, making the prospects for interest rate cuts in March increasingly slim. Federal Reserve Chairman Powell also said in an interview last week that it is possible to cut interest rates until after March. It is expected that interest rates will be cut three times this year, which is lower than market expectations. However, US Chicago Federal Reserve Chairman Goolsbee reiterated on Monday that he does not want to rule out the possibility of interest rate cuts in March, but needs to see more data showing progress in fighting high inflation. Minneapolis Federal Reserve Chairman Kashkari said that the Federal Reserve has time to evaluate economic data before cutting interest rates, believing that the current interest rate policy may not be as tight as expected, and that neutral interest rates may have risen.

Chicago Federal Reserve Chairman: Interest rate cuts in March are not ruled out

Federal Reserve Chairman Powell also said in an interview last week that it is possible to cut interest rates until after March. It is expected that interest rates will be cut three times this year, which is lower than market expectations. In contrast, US Chicago Federal Reserve Chairman Goolsbee's statement was rather dovish. In an interview with the media on Monday, he said he doesn't want to rule out the possibility of interest rate cuts in March, but he needs to see more data showing progress in fighting high inflation.

Goolsbee said, “We have been receiving very good inflation data reports for seven consecutive months, and almost all of them are close to or below the Federal Reserve's target. So if we continue to receive such data, I believe we should be well on the path of interest rate normalization.”

Goolsbee said he doesn't want to promise specific decisions just a few weeks before the March meeting, nor speculate on the possibility that the FOMC will cut interest rates by 50 basis points at a time.

He also said that the inversion of the US bond yield curve is not a reliable sign of the current US economic recession, and strong employment data does not mean that the labor market is overheated. Goolsbee said credit conditions have been tightened over the past 18 months or so.

Minneapolis Federal Reserve Chairman: The current interest rate policy may not be as tight as expected

US Federal Reserve Chairman Kashkari also said on Monday that policymakers will have time to evaluate the data to be released before cutting interest rates. This statement suggests that the economic situation has changed after the pandemic, and that neutral interest rates may have risen.

Kashkari posted an article on the bank's website on February 5, saying, “At least during the post-pandemic economic recovery period, neutral policy interest rates have risen, giving the Federal Open Market Committee (FOMC) time to complete the evaluation of economic data before making a decision to cut interest rates, reducing the risk of excessive policy tightening.”

Compared with monetary policy, supply-side factors made a “significant contribution” in reducing inflation to close to the Federal Reserve Bank's 2% target, Kashkari wrote. Evidence of this includes the resilient growth of the economy and a strong labor market. Despite this, interest rate hikes have played an “extremely important” role in keeping long-term inflation expectations low, he said.

According to the data, the core inflation index, which excludes food and energy prices, slowed to its lowest level in nearly three years in December. On a six-month annualized basis, the core CPI rose 1.9%, which is lower than the Federal Reserve's target of 2%. Meanwhile, the unemployment rate has remained near decades-long lows, and strong consumer demand has driven healthy growth.

Kashkari wrote, “This set of data shows that the current monetary policy stance, including the current level and expected path of the federal funds rate and balance sheet, may not be as tight as we expected, and the low neutral interest rate environment that existed before the pandemic.”

Kashkari, who did not have the right to vote this year, wrote a series of articles in 2022 and 2023 during the Federal Reserve Bank's interest-bearing efforts to reduce inflation. In an article published in September last year, he believes that the probability of a soft landing for the US economy is 60%. But Kashkari also warned of a situation where inflation could become entrenched, forcing the Federal Reserve to further tighten monetary policy to fully restore price stability.

Editor/Corrine