Julian Howard (Julian Howard), chief investment director of GAM multi-asset solutions, said that Federal Reserve officials seemed “clueless” about the US inflation situation.

When Howard made these remarks, Fed policymakers have been urging all parties to be patient on the interest rate cut issue in recent weeks. They argued that the decline in inflation was lower than previously anticipated, and that it is still too difficult for the Federal Reserve to push forward a loose monetary policy.

Howard said on Wednesday, “I think the message they're sending is that they don't know what happened.”

Federal Reserve Governor Waller said on Tuesday that before supporting interest rate cuts, he needs to see more data to prove that inflation is weakening. He said at an event at the Peterson Institute for International Economics in Washington, “With no significant weakening in the job market, I need to see good inflation data for several more months before I can confidently support monetary policy relaxation.”

Waller's remarks were echoed by other Federal Reserve officials on Tuesday, including Boston Federal Reserve Chairman Collins. “I think the data is very complicated... and it will take longer than I thought before. We are in a period where patience is really important.”

However, GAM's Howard said that Federal Reserve officials have yet to send a clear message about their expectations, nor have they explained why inflation remains high. He pointed out, “As we all know, inflation is hard to predict, and I don't think they have any idea what's going on. Honestly, it's a question of credibility.”

Howard said that policymakers initially said that inflation would be contained when it began to rise, and explained that the rate of inflation then soared. He said, “Now policymakers think inflation is falling, but it's not falling fast enough.”

Data released earlier this month showed that the US CPI data for April rose 3.4% year on year. This is a slight decrease from 3.5% in March, far below 9.1% when the inflation cycle peaked in June 2022, but still above the Federal Reserve's 2% target.

Howard said, “Inflation did begin to fall, but then it only seemed to stay around 3.5%. Everyone was trying to find an explanation for why it stayed at 3.5%. I think this is a challenge.”

He added that the stock market seems to be dealing with high levels of inflation and has also adjusted expectations for interest rate cuts. The market's current expectations for the Fed to cut interest rates are far lower than earlier this year.

Howard attributed the market's sluggish reaction to changes in large stocks. He explained that these companies currently have high levels of cash and can make relatively risk-free investments, such as short-term US Treasury bonds.

Howard said, “If interest rates fall, that's a good thing for their income. If interest rates rise, or don't fall as expected, it doesn't matter because their high cash levels mean they can make a lot of money risk-free every year.”

Editor/Jeffrey