Cleveland Fed President Loretta Mester said Thursday that the latest inflation data won’t change her expectations for three rate cuts later in 2024.
Mester said in a new interview that the month-to-month rise in the Fed’s preferred inflation measure “doesn’t really change my view” that she still believes. Over time, inflation is falling toward the Fed’s 2 percent target.
“But it does show that the Fed has more work to do to make sure we can get back to our 2 percent goal.” “She added.
Mester still expects three rate cuts in 2024, in line with an estimate she first made last year. “If the economy develops as I expect, I feel right now,” she said.
Mester’s comments followed the release of January’s PCE price index, the Fed’s favorite inflation measure. The data showed that the core PCE price index, which excludes the volatile food and energy components, rose 0.4 percent month-on-month, in line with expectations but the biggest gain in a year. That bolsters policymakers’ desire to be cautious about cutting interest rates.
Before Thursday’s data, six-month annualized price gains had been below the Fed’s 2% target for two months in a row. However, after the January data were released, six-month personal consumption expenditures rose at an annualized rate of 2.5%.
Meester is the rotating voting committee this year. Given solid economic growth and a healthy job market, the Fed has an opportunity to be patient, she said.
“I think we have an opportunity to make sure things move in the right direction. At present I think the economy and monetary policy are in good shape.” “She said.
After some higher-than-expected inflation data and strong jobs numbers, several Fed officials, including Chairman Jerome Powell, have cautioned patience with rate cuts. Some warned that the path to 2% inflation would be “bumpy.”
Investors have also been compromising: changing their expectations from “six rate cuts starting in March” to “three rate cuts starting in June.”
One of Mester’s colleagues, Atlanta Fed President Raphael Bostic, also urged patience again in a new speech Thursday, reiterating his forecast for a rate cut this summer.
“The latest inflation numbers suggest that it’s not going to be an unstoppable march that gets you to 2 percent immediately, but there are going to be some bumps.” ‘he said.
Finally, Mester also said that for now she expects demand to slow because high interest rates are cooling the economy. She also pointed to signs that consumers are becoming more cautious in their spending and business investment.
Article source: Financial Union
