As the market’s expectations for a rate cut by the Federal Reserve this year have significantly diminished, several Fed officials made hawkish comments on Thursday. New York Fed President John Williams and Atlanta Fed President Raphael Bostic even indicated their openness to raising interest rates.
Just a few weeks ago, many Fed officials stated that under a tight monetary policy, the higher-than-expected inflation at the beginning of this year would cool down, necessitating multiple rate cuts before the end of the year. However, with recent strong growth in US nonfarm payrolls, an unexpected consecutive rise in the March inflation index for the third month in a row, and other strong economic data, more and more officials have expressed a preference for a gradual rate cut.
Several officials took a hawkish stance. New York Fed President John Williams stated on Thursday that the Fed’s interest rate level is in a good position and inflation is gradually declining. He does not feel a sense of urgency for a rate cut in the near future and will rely on economic data to determine the timing of a rate cut. When asked about the possibility of restarting rate hikes, Williams mentioned that it is not his baseline expectation but if economic data indicates that higher rates are needed to achieve the target, the Fed would obviously want to do so.
Atlanta Fed President Raphael Bostic stated on Thursday that he currently expects the rate cut to begin at the end of this year and only once, but if inflation remains stagnant or even starts moving in the opposite direction, he will have to be open to raising rates.
Minneapolis Fed President Neel Kashkari, in an interview with Fox News on Thursday, stated that the Fed needs to have more confidence in the decline of inflation before cutting rates and the timing of a rate cut may be postponed until after 2024. When asked if it is appropriate to maintain stable interest rates this year given the recent higher-than-expected inflation data, he responded:
Cleveland Fed President Loretta Mester stated on Wednesday that the inflation rate so far this year has been higher than expected. The Fed will need to start cutting rates at some point, but there is no rush to do so. The precondition for a rate cut is that the Fed is “reasonably confident” that the inflation rate will continue to return to the 2% target.
The market expects a 25% probability of a rate cut in June. The next Fed policy meeting will be held from April 30 to May 1. According to CME’s FedWatch tool, market expectations for keeping rates between 5.25% and 5.5% in May are as high as 96.8%, with only a 3.2% chance of a rate cut to 5% to 5.25%. Additionally, the market estimates a probability of around 25.8% for a rate cut in June, with a 73.4% probability of rates remaining unchanged. The probability of a rate cut in September is 44.9%, while the probability of keeping rates steady is 25.2%.
[Image]
Source: FedWatch
Related Reports
Economy Too Strong, US Treasury Yields Surging, UBS Warns: Fed Could Raise Rates to 6.5% Next Year, Dealing Heavy Blow to Stock Market
Fed Official Bostic: Expects Only One Rate Cut by Fed This Year, Prematurely Easing Would be More Disruptive
Powell: Real Estate Bad Debt Could Lead to “Bank Failures,” But Risks Are Controllable, Clear That Fed Risks Being Late in Cutting Rates