Source: Caixin.
① The mild inflation data of June last week made him more convinced that price pressures are easing, supporting lowering of the benchmark interest rate. ② Continuing to tighten interest rate policy is meaningless because there is no danger of overheating in the economy.
According to a report released by Nick Timiraos, a "mouthpiece" for the Federal Reserve, Mr. Gulbis of the Federal Reserve said that last week's moderate inflation data for June made him more convinced that price pressures were easing, thus supporting a rate cut.
Guolsby pointed out that he was worried that maintaining interest rates would lead to an overly tight policy stance because as inflation rates fell month by month, inflation-adjusted short-term interest rates were actually rising.
When interviewed by Timiraos, Guolsby said, 'We are tightening (monetary policy). When we set this rate, inflation was over 4%. Now inflation has fallen to 2.5%. This means that since we have maintained this rate, we have significantly tightened monetary policy.'
The data from last week showed that the CPI annual rate in the US recorded 3.0% in June, the lowest level since June 2023; the core CPI rose by 0.1% month-on-month in June, which was the mildest increase since January 2021.
Since July last year, the Fed has kept the federal funds rate target range unchanged at 5.25% to 5.5%. Currently, investors generally expect the Fed to cut interest rates at the policy meeting in September.
At the Federal Open Market Committee (FOMC) meeting on July 30th and 31st, Guolsby will vote for the Cleveland Fed. He is considered one of the most "dovish" officials within the Fed.
Guolsby said that continuing to tighten interest rate policy is meaningless for the Fed because there is no longer a danger of overheating in the economy. The unemployment rate is rising, recruitment is cooling down, and the delinquency rate of some consumer debts is rising. "It is only necessary to maintain this restriction when the economy is overheated, but now it is obvious that there is no need!"
However, Guolsby refused to say whether the Fed should cut interest rates in July or wait until September. He added that the impact of monetary policy does not depend on "whether you take action today or six weeks later," but more on how the Fed shapes broader expectations.
He said, "What we should do is try to figure out where we are on this path for this meeting and the upcoming meetings."
Fed Chairman Powell also hinted last week that the labor market is slowing down, weakening a major source of inflation and possibly laying the groundwork for further weakness, paving the way for interest rate cuts.
Daly, the president of the San Francisco Fed, said she expects there may be a need to cut interest rates soon, but did not endorse a rate cut at the July meeting. As long as "people understand our possible future direction," then there is no special difference for the broader economy to decide whether to cut interest rates at this meeting or the next.
Editor/Lambor