Inflation is not yet stable enough to lower interest rates.

It's not the right time to cut interest rates.

At the beginning of 2024, futures traders predicted at least six interest rate cuts during the year, starting in March 2024. However, a series of higher-than-expected inflation data altered those predictions. The first anticipated interest rate cut did not occur, with the earliest cut now predicted for September 2024.

Christopher Waller, the governor of the Federal Reserve Bank of St. Louis and a permanent voting member of the Federal Open Market Committee, has shown caution and an unwillingness to support interest rate cuts at this time.

Speaking to the Peterson Institute for International Affairs, Christopher Waller said: “If the labor market doesn’t weaken significantly (the economy remains stable) and can tolerate a certain level of inflation, we will be looking at inflation data for another few months before we can comfortably ease our monetary policy stance.”

The headquarters of the US Federal Reserve (FED) in Washington, DC (Photo: Reuters)

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A series of Fed officials support further interest rate cuts, easing exchange rate pressure towards the end of 2024.

Meanwhile, Loretta Mester, president of the Cleveland Fed, reiterated her view that inflation data should be considered before making monetary policy decisions in her comments at the Atlanta Fed conference on May 21.

“I need to see the inflation data over the next few months; it looks like it’s going down,” Mr. Mester commented, adding that if inflation data is falling, this could suggest that inflationary pressures are easing and that maintaining the same tight monetary policy as before is no longer necessary. However, monetary policy decisions depend not only on inflation data but also on many other factors such as the labor market situation, economic growth prospects, and financial conditions.

Christopher Waller pointed to a series of recent data, from flat retail sales to a slowdown in both the manufacturing and services sectors, to show that the Fed's higher interest rates have helped ease some of the capital demand contributing to the highest inflation rate in over 40 years.

Despite strong wage increases, internal data reveals strain in the US labor market as many people continue to leave their jobs. The competitive labor market fuels these wage hikes. However, this could undermine the Fed's 2% inflation target.

Additionally, the US consumer price index for April showed inflation at 3.4% year-on-year, a slight decrease from March. The monthly increase was 0.3%, slightly lower than economists' predictions. This indicates that the pace of price increases is more stable than previously anticipated, although it remains high compared to the Fed's 2% inflation target.

We need to wait longer.

The Labor Department report was described by Christopher Waller as "a welcome relief." However, he stressed that while the report showed progress, it was still not enough to change his view that more compelling evidence was needed before he could support any monetary easing policies.

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Christopher Waller did not disclose his specific expectations regarding the timing or extent of interest rate cuts. Instead, he stated that he would remain silent and wait for concrete developments he wants to see in future inflation reports.

In a statement, Atlanta Fed President Raphael Bostic echoed Christopher Waller's sentiment, stating that the U.S. central bank needs to exercise caution when deciding on its first interest rate cut to ensure it doesn't negatively impact business and household spending. At the same time, it needs to be particularly mindful of putting policymakers in a position where inflation could quickly rebound.

Raphael Bostic told reporters on the sidelines of the Atlanta Fed conference in Florida: "It's in our interest to avoid any volatility... We need to ensure that when we decide to proceed, inflation will stabilize at 2% ." He said he still believes inflation will gradually decline during the year, and a one-time interest rate cut in Q4 2024 is appropriate.

Source: https://congthuong.vn/cac-quan-chuc-fed-canh-bao-lam-phat-chua-on-dinh-de-ha-lai-suat-321683.html