Fed Officials Emphasize that Lower Rates Are Not a Done Deal

Federal Reserve officials have been emphasizing that lower rates are not necessarily a done deal. Increasingly, more voices among Fed decision-makers across various districts are highlighting the need for more progress on inflation before even considering rate cuts. This caution persists despite market expectations of an impending rate cut.

Caution Despite Lower CPI

Federal Reserve officials, including high-profile members such as Vice Chair Philip Jefferson and Vice Chair of Supervision Michael Barr, have urged caution regarding the recent easing of consumer price pressures in April. They emphasize that the Fed’s plan depends on ongoing economic data. Both officials stated it’s too early to determine if the slowdown in price increases will be long-lasting. They stressed the need for continued caution and reminded their audiences of the Fed’s big-picture message: rate cuts are on hold until it is clear that inflation will return to the central bank’s 2% target.

Cleveland Federal Reserve Bank President Loretta Mester and San Francisco Fed President Mary Daly have also weighed in on the issue. Mester expressed caution about the pace of inflation’s decline, stating that she does not see three rate cuts this year as likely. Speaking to Bloomberg TV on Monday, Mester said that with the lack of progress on inflation and the stronger-than-expected economy, if inflation does stall out or gain ground, the Fed is well-positioned to respond. She said the response would be “either by holding rates at current levels for longer or, if appropriate, raising the rate.”

Daly noted that while she does not see evidence of the need to hike rates, she is not confident that inflation is falling toward 2% and sees no urgency to cut rates.

Fed Policy Meeting on Tap

The Fed’s next policy meeting is scheduled for June 11-12. Currently, interest rate futures traders do not expect a rate cut until September. This suggests that the Fed’s cautious approach to rate cuts is likely to persist in the near term. Meanwhile, officials remain focused on ensuring that inflation is on a clear path back to the 2% target before making any adjustments to monetary policy.

Key Takeaway

One lower inflation reading is not indicative of a trend. Federal Reserve officials are cautious about inflation progress. Members are signaling that they are not ready to indicate rate cuts. Meanwhile, the Fed’s restrictive policy is expected to persist until clear evidence shows that inflation is returning to the central bank’s 2% target. The next Fed policy meeting is scheduled for June 11-12.