Source: Golden Ten Data

The still high inflation rate in the US has raised growing concerns, and has cast a shadow over the prospects for the Federal Reserve to relax monetary policy. More and more Federal Reserve officials say they are in no hurry to cut interest rates.

New York Federal Reserve Chairman Williams told reporters on Thursday, “There is no obvious need to adjust monetary policy in the short term.” The day before, the consumer price index (CPI) completely exceeded expectations, prompting traders and some analysts to predict that the Federal Reserve would delay interest rate cuts, and that the number of interest rate cuts might decrease.

Boston Federal Reserve Chairman Collins said in another speech in New York: “Recent data shows that before policy relaxation begins, it may take longer than I previously thought to gain more confidence in the downward trajectory of inflation.” A strong labor market “has also reduced the urgency of easing policies,” she added.

The statements of these two Federal Reserve officials echoed the views of many recent colleagues. They unanimously warned that since inflation seems to be on a “bumpy” path back to the 2% target, interest rates should not be cut too fast.

As it turns out, the inflation problem is more difficult than what Federal Reserve officials predicted a few months ago, and other economic indicators show no signs of slowing down. The combination of these factors further delayed the expected start of the interest rate cut cycle.

Richmond Federal Reserve Chairman Barkin said earlier that it is difficult for him to reconcile the breadth of current inflation with the progress of interest rate cuts that the Federal Reserve needs to see. On Thursday, Barkin said the latest data had not strengthened his confidence that overall economic price pressure was generally easing.

What is certain is that Federal Reserve officials all think interest rates need to be cut in the future. Collins said “later this year,” Williams said “eventually,” and Barkin said “it depends on upcoming data.” Among them, Williams is the permanent voting committee, and Barkin is the voting committee that rotates this year.

Williams said that the recent “sharp rise” in inflation data was not surprising. If anything were surprising, it was that price pressure eased too fast last year.

The spillover effects of the Federal Reserve's policies

The Federal Reserve's delay in cutting interest rates may also affect the monetary policy direction of other major central banks. The ECB president kept policy interest rates unchanged on Thursday, but hinted that interest rates would be cut as early as June. As the Eurozone labor market has begun to weaken, economic growth has also come to a standstill.

Although ECB President Lagarde insisted that it “does not depend on the Federal Reserve,” sources told Reuters that the ECB may suspend interest rate cuts after June, waiting for the Federal Reserve to make a more clear explanation of its interest rate decision.

Some analysts pointed out that from a verbal standpoint, the ECB is already paying more attention to the impact of the Federal Reserve's policies than it was in March. “The US is a very large market, a very large economy, and a major financial center, so all of these will enter our predictions,” Lagarde told reporters at the press conference.

Meanwhile, International Monetary Fund (IMF) Managing Director Georgieva said that continued high US interest rates are “not good news” for the rest of the world because it has attracted global liquidity to the US market and left the rest of the world “in some kind of trouble.”

After the US CPI data for March was stronger than expected, the market generally reconsidered expectations about when the Federal Reserve could cut interest rates this year. The financial market currently expects the Federal Reserve to cut interest rates in July or September, while the previous forecast was for June.

Economists at many Wall Street investment banks, such as Goldman Sachs, Bank of America, Barclays, and Wells Fargo Bank, also changed their forecasts after the CPI data was released. It is expected that interest rates will only be cut once or twice this year, not the previous three. Some economists even think that the Federal Reserve may not cut interest rates until 2025.

Bank of America now anticipates that the Federal Reserve will cut interest rates only once in 2024, the first time in December, and raise the 2026 terminal interest rate forecast by 50 basis points to 3.5-3.75%. The bank's previous forecast was to cut interest rates starting in June and cutting interest rates by a total of 75 basis points for the whole year.

editor/tolk