Source: Jin10 Data

Federal Reserve Board member Warul said Wednesday that interest rate cuts are imminent as long as there are no major surprises in inflation and employment.

In his speech, Warul said," I believe that the current data is consistent with a soft landing, and I will look for data in the coming months to support this view. So, while I do not believe we have reached our final destination, I do believe we are getting closer and closer to the time when we need to cut interest rates."

Consistent with the statements of other decision-makers, Warul's remarks indicate that the likelihood of a rate cut at the FOMC meeting later this month is slim, but the likelihood of a rate cut in September is high.

In recent months, Fed officials have become more optimistic as data show that inflation has eased after unexpectedly rising in the first three months of 2024.

Warul outlined three scenarios that could occur in the coming days: First, more positive inflation data would provide a reason to cut interest rates in the "near future." Second, data fluctuates, but still points to a slowdown. Third, inflation rebounds and forces the Fed to adopt a more restrictive policy stance. He believes that the third scenario, the possibility of unexpected inflation strength, is the smallest.

"Given that I believe the first two scenarios are the most likely to occur, I believe the timing of a rate cut is imminent," Warul said.

Warul's remarks on Wednesday were particularly noteworthy because he has been one of the most hawkish members of the Federal Open Market Committee this year, concerned that inflation will be more persistent than expected.

In May, Warul expected interest rate cuts to come "a few months later" as he waited for more convincing data to show that inflation was falling. His remarks on Wednesday indicate that the Fed is about to reach the threshold for cutting interest rates.

On the one hand, he said the labor market was "in its best state," with wage growth slowing down while employment continued to expand. Meanwhile, CPI inflation fell 0.1% MoM in June, while core CPI YoY slowed to 3.3%, the lowest since April 2021.

He said, "After disappointing data in early 2024, we now have months of data that I believe are more consistent with the progress we saw last year with persistent declines in inflation, and in line with the FOMC's price stability goal. Increasing evidence suggests that the first-quarter inflation data may have been an anomaly, and that tight monetary policy has controlled high inflation."

These comments are also consistent with those made earlier by the Fed's number three, New York Fed President.

As a result, the market is once again predicting more accommodative policies from the Fed. The Chicago Mercantile Exchange's Fed Watch Tool shows that Fed funds futures traders are betting that the Fed will cut interest rates by 25 basis points in September and at least once more before the end of the year.WilliamsWilliams pointed out," Inflation data are moving in the right direction, and are fairly consistent."

As a result, the market is once again predicting more accommodative policies from the Fed. The Chicago Mercantile Exchange's Fed Watch Tool shows that Fed funds futures traders are betting that the Fed will cut interest rates by 25 basis points in September and at least once more before the end of the year.

Editor/Lambor