Federal Reserve Policymakers Eye First Interest Rate Cut
In a recent speech at the American Enterprise Institute, Fed Governor Christopher Waller expressed confidence in current policy, stressing the importance of slowing the economy and bringing inflation back to 2%. He also hinted at the possibility of lowering the policy rate in response to prolonged low inflation, a statement that took many by surprise. Waller’s remarks caused a shift in market tone, pushing bond yields down and leading traders to price rate cuts as early as May.
The evident slow down in inflation is attributed to strides in both goods and labor supply, following distortions caused by the COVID-19 pandemic. Despite this progress, Waller and other officials like Chicago Fed President Austan Goolsbee highlight the importance of not overdoing it. Similarly, Fed Governor Michelle Bowman emphasizes the need for further rate hikes to bring inflation to the target of 2%.
Even as the Fed takes a more accommodating stance towards interest rates, it also remains watchful of the job market and long-term interest rates. Policymakers are eagerly awaiting new inflation data as well as a monthly jobs report before they decide on potential rate cuts at the next month’s gathering.
Fed Chair Jerome Powell is projected to provide more insights into this at upcoming remarks in Atlanta. The market, on the other hand, speculates about future policy outcomes, with the prospect of rate cuts gaining traction.
By Howard Schneider, Ann Saphir, and Lindsay Dunsmuir; Editing by Andrea Ricci, Paul Simao, and Chris Reese