On Thursday, two Federal Reserve officials in the United States expressed their views on interest rate cuts. Chicago Federal Reserve Bank President Austan Goolsbee indicated a loosening attitude towards interest rate cuts, stating that if inflation data continues to cool down as it did in May, the central bank will be able to cut interest rates. However, another voting member of the Federal Reserve, Thomas Barkin, stated that he still needs to determine the inflation path before supporting interest rate cuts.
According to the US Bureau of Labor Statistics’ release of May’s Consumer Price Index (CPI) and retail data, both were lower than market expectations, indicating a continued cooling of inflation. As a result, several Federal Reserve officials have explicitly stated that if the economic conditions continue to develop as expected, interest rate cuts will become appropriate this year.
Even Austan Goolsbee, the President of the Chicago Federal Reserve Bank, who previously stated that the progress made by the Federal Reserve in fighting inflation has stalled, has noticeably softened his stance on interest rate cuts and started discussing the criteria for rate cuts this year.
According to Bloomberg, Goolsbee, in an interview with Fox News on the 20th, stated that if inflation data continues to cool down as it did in May, Federal Reserve officials will be able to start cutting interest rates. (Although Goolsbee does not have voting rights this year)
He praised the CPI data for May, which showed a second consecutive month of slowing core inflation. Goolsbee commented on this:
In addition, Thomas Barkin, the President of the Richmond Federal Reserve Bank, who has voting rights on monetary policy this year, stated to reporters on Thursday that he still needs further clarity on the inflation path before deciding to support interest rate cuts. He reiterated that he needs to make sustained progress towards achieving the Federal Reserve’s 2% inflation target before considering rate cuts. He believes that the current policy of the Federal Reserve is in a favorable position and praised the central bank for having the ammunition to restrain inflation.
Last week, Federal Reserve officials voted to keep interest rates unchanged in the range of 5.25% to 5.5%, the highest level in over two decades. The dot plot from the meeting showed that policymakers anticipate only one interest rate cut in 2024 (lower than the previous projection of three cuts) and four cuts in 2025.
When asked if the Federal Reserve could cut interest rates once this year and maintain them at this level, Barkin stated that it depends on the economic conditions and that “if the current situation continues, now may not be the best time to provide guidance on the timeline for subsequent policy adjustments.”
The CME FedWatch tool for the Chicago Mercantile Exchange estimates that there is a 89.7% probability that the Federal Reserve will freeze interest rates again in July, while the probability of interest rate cuts starting in September is slightly above 64%.
Source: CME FedWatch Tool