Fed’s Powell Confirms a Wait for Any Rate Cuts
The central bank sees things getting back on track but wants to be ‘more confident that inflation is moving sustainably down.’
A macroeconomic research company — the innocent and guilty will remain nameless today — just informed GlobeSt.com that conditions were moving toward a July rate cut by the Federal Open Market Committee (FOMC).
Obsession with data is understandable. Information under analysis can tell a lot, but it can miss psychological factors that drive how people make decisions. In this case, Federal Reserve Chair Jerome Powell made clear at a European Central Bank policy forum today in Portugal that while things were moving in the right direction again, the Fed is in no hurry.
“The last [inflation] reading and the one before it to a lesser, lesser extent, suggest that we are getting back on the disinflationary path,” CNBC reported. (The Federal Reserve had not posted Powell’s remarks at the time of writing.) “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing or loosening policy.”
This is neither a particularly hawkish nor dovish monetary stance. The Fed hadn’t been secretive about its desire to see enough of the data it looks for before making a decision. From previous remarks and comments from experts, this typically means nine-to-12 months of data for the FOMC to make a significant decision. Think of how long it took them to raise rates as inflation flared up. And consider that last month an emerging consensus, which isn’t an official decision, developed in the Fed that there might be only one rate cut in 2024. Already it had been clear that September would be the earliest time for a first cut.
While Powell said that inflation risks and labor market strength were coming into balance, as Bloomberg reported, the Fed can remain patient. “We’re getting a gradually cooling economy, a gradually cooling labor market, progress on inflation, 4% unemployment, 2% growth,” Powell said. “We’re getting kind of what we want to have.”
And history from the 1980s teaches that premature reductions can allow inflation to flare up and get far worse, making ultimate control more difficult. “We’re well aware that if we go too soon, that we can undo the good work we’ve done,” Powell said. “If we do it too late, we could unnecessarily undermine the recovery and the expansion.”