Top Economic Officials See Rate Cuts Back on the Table

Opinions by top economists — the ones with power to influence monetary policy — have suddenly taken another turn. After months of hot reads on inflation and the labor market, things have calmed a bit. Suddenly, the experts are showing more confidence — sort of. Here are some examples:

Federal Reserve Bank of San Francisco President Mary Daly told reporters that while progress on inflation will always be “bumpy … there are reasons to believe that we’re heading in the right direction.” Rental price appreciation, a large driver of inflation, has been coming down, although there’s a mismatch between supply and demand for housing. She expects inflation will decrease gradually. However, she said it’s unclear when it would be appropriate to adjust rates or other policies.

St. Louis Fed President Alberto Musalem thinks the current federal fund’s range of 5.25% to 5.50% is restrictive enough to work “inflation down to the Fed’s 2% target.” The kicker/? Over time so there’s little risk to the economy or labor market. Recent data said there is progress in lowering inflation. Even with the latest core Consumer Price Index reduction — the first actual drop in four years, according to Reuters — he still wants “more evidence that inflation can be expected to converge to 2% going forward.” Labor market conditions are moved back to pre-pandemic levels.

Federal Reserve Governor Lisa Cook said in an address in Australia on July 11 that data “so far appears to be consistent with a soft landing: Inflation has fallen significantly from its peak, and the labor market has gradually cooled but remains strong.”

Chicago Federal Reserve Bank President Austan Goolsbee told reporters in a group interview, according to Reuters, that the unexpected upward data bump during the first four months of 2024 might be an aberration and that the current data is “what the path to 2% looks like.” But he wouldn’t say whether he would vote for a rate cut in the Federal Open Market Committee meeting at the end of July.

And the International Monetary Fund said that it thinks the Fed could start cutting rates later this year, according to a Reuters report.

Many of these remarks came on June 11, on the heels of a drop in CPI that beat expectations. However, on Friday, July 12, the Producer Price Index was up 0.2% compared to the median expectation of 0.1%. If price pressures increase on businesses, there’s a good chance they will ultimately pass them along to consumers.

A single report isn’t dispositive, but a few months of good data isn’t necessarily solid proof of the opposite. Powell continues to refuse a timeline for when cuts might happen. Each of the Fed officials hedged their predictions. No one knows what might happen.

In addition, only last week Powell said, “I think we probably won’t go back to that era between the global financial crisis and the pandemic, [when] rates were very low and inflation was very low.”

Put differently, anxiously waiting for a present of a large rate cut might be similar to the anticipation of getting your heart’s desire during the end-of-year holidays only to get tube socks.