Source: Caixin.
Author: Niu Zhanlin
According to his current prediction, he believes that a rate cut this year is appropriate;
He also takes an open attitude towards other policy paths, as uncertainty remains high.
On Monday EST, Philadelphia Fed President Harker said that based on current forecasts, he believes that a rate cut this year is appropriate and hopes to see more progress in data.
At a business event on the same day, Harker pointed out that the trend of inflation at the beginning of the year did indeed experience some turbulence, and the recent inflation report showed that the Consumer Price Index (CPI) decreased in May, which is "very popular" and also shows that progress in anti-inflation is slow, but fortunately, it has not come back to life.
He added that he hopes to see more economic data to ensure that inflation is sustainably moving toward the central bank's 2% target. He claimed that he is also open to other policy paths because uncertainty is still high.
Recent data shows that the US May CPI rose 3.3% year-on-year, and the core CPI rose 3.4% year-on-year, both of which were 0.1 percentage points lower than the market expected. In May, the PPI fell by 0.2% month-on-month, and the core PPI remained unchanged. It was also lower than the expected 0.3%.
The appearance of significant drop in both CPI and PPI has boosted the financial market's hopes that the Federal Reserve will begin reducing interest rates in September. The Fed kept interest rates unchanged as expected last week, and the dot plot shows that Fed officials expect only one interest rate cut this year, while waiting for further progress on inflation. The financial market generally expects two rate cuts this year.
"If everything goes as expected, I think it will be appropriate to cut interest rates once before the end of the year. Of course, if there are problems with the data, it is very likely that there will be two interest rate cuts this year or no interest rate cuts. Therefore, we will still rely on data." Harker said.
The Philadelphia Fed President currently expects economic growth to slow down, but it is still higher than the trend level, and the unemployment rate will rise moderately. He also believes that long-term inflation in the United States will slide towards the Federal Reserve's 2% target.
Harker claimed that he will continue to closely monitor inflation, labor market and economic activity data in the coming months. The current policy interest rate is in a restrictive zone, and keeping interest rates at the current level for a longer period of time will help reduce inflation and mitigate upward risks.
Of course, the upward risk of inflation cannot be ignored, such as the long-term high housing inflation and the continuous rise in consumer prices index in the services industry, especially in auto insurance and maintenance industries.
Finally, he emphasized that at this critical moment (the US election), the independence of the Federal Reserve will become crucial, and it will make specific decisions for the dual mission rather than partisan politics.
Editor/Jeffy