① Meester reiterated that the Fed needs to gain enough confidence to cut interest rates; ② she pointed out that the inflation rate so far this year is higher than expected; ③ Mester's remarks marked a shift from her expectations two weeks ago. At the time, she was convinced that the Fed might cut interest rates “later this year.”
Financial Services Association, April 18 (Editor Huang Junzhi) Cleveland Federal Reserve Bank Governor Loretta Mester (Loretta Mester) said on Wednesday that she expects price pressure to ease further this year, allowing the Federal Reserve to reduce borrowing costs, but only if the Fed is “quite confident” that inflation will continue to move towards the 2% target.
“At some point, when we gain more confidence, we'll start to normalize our policies and go back to less restrictive positions, but we don't have to rush to do that,” she said.
Data released by the US Department of Labor last week completely shattered the market's half-year “interest rate cut dream: the US Consumer Price Index (CPI) rose 3.5% year on year in March, the highest level since September 2023, exceeding market expectations. At the same time, this is the third month in a row that the US CPI has unexpectedly accelerated.
Meester pointed out that the inflation rate so far this year has been higher than expected.
According to reports, she has the right to vote on US monetary policy before the Federal Reserve's mid-June meeting this year. After the meeting, she will leave office in accordance with the Federal Reserve's mandatory retirement regulations. A successor has yet to be nominated.
“Sometimes things don't work. We can only stay alert here and wait for the economy to show where we are.” She said, “Given the strong labor market (unemployment rate was 3.8% in March) and the US economy is growing steadily, there is time for the Federal Reserve to wait for more information before taking any action.”
Mester's remarks marked a shift from her expectations two weeks ago, when she was convinced that the Federal Reserve might start cutting policy interest rates from the current 5.25% to 5% range “later this year.”
Since this week, quite a few officials have made similar remarks. Even Federal Reserve Chairman Powell hinted on Tuesday that interest rates may remain high for a longer period of time. He said that the US economy is showing strong performance in most aspects, except that inflation has not yet returned to the central bank's target. In view of this, it is unlikely that the Federal Reserve will cut interest rates anytime soon.
Powell mentioned that the Federal Reserve's preferred inflation indicator, the personal consumption expenditure (PCE) price index for February had an annual rate of 2.8%. “It clearly didn't give us more confidence; on the contrary, it showed that it might take longer than expected to gain that confidence.”
Furthermore, Federal Reserve Vice Chairman Philip Jefferson (Philip Jefferson) also said that if US inflation does not slow as expected, the most important central bank in the global financial system will be prepared to keep its tight monetary policy unchanged.
And the market apparently accepted this information. According to the CME Federal Reserve's observation tool, the market currently predicts that the “first drop” will most likely occur in September. This year, it should be possible to “barely” cut interest rates twice. Just a few weeks ago, three interest rate cuts were the main expectations of the market, Federal Reserve policy makers, and external analysts.
Editor/Somer