As expectations for a rate cut by the Federal Reserve this year have significantly diminished in the market, several Fed officials made hawkish remarks on Thursday. John Williams, President of the Federal Reserve Bank of New York, and Raphael Bostic, President of the Federal Reserve Bank of Atlanta, even expressed openness to raising interest rates.
A few weeks ago, many Fed officials stated that with tightening monetary policy, they expected the previously higher-than-expected inflation to cool down in the beginning of this year, and therefore, multiple rate cuts were needed before the end of this year. However, with recent strong growth in US non-farm employment data, unexpected consecutive increases in inflation indicators for the month of March, and strong performance in other economic data, more and more officials have expressed that rate cuts should proceed cautiously.
Several officials took a hawkish stance. John Williams, President of the Federal Reserve Bank of New York, stated on Thursday that the interest rate level of the Federal Reserve is in a good position and inflation is gradually decreasing. He does not feel a sense of urgency for rate cuts in the near future and will rely on economic data to determine the timing of rate cuts. When asked if a restart of rate hikes is possible, John Williams mentioned that it is not his base expectation, but if economic data indicates that higher rates are needed to achieve the target, the Federal Reserve would obviously want to do so.
Raphael Bostic, President of the Federal Reserve Bank of Atlanta, stated on Thursday that he currently expects rate cuts to begin at the end of this year, with only one cut. However, if inflation remains stagnant or even starts moving in the opposite direction, he will have to take an open stance on rate hikes.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, stated in an interview with Fox News on Thursday that before rate cuts, the Federal Reserve must have more confidence in the decline of inflation. The timing of rate cuts may be postponed until after 2024. When asked about recent inflation data being higher than expected, he responded that it would be appropriate to maintain a stable interest rate for this year.
Loretta Mester, President of the Federal Reserve Bank of Cleveland, stated on Wednesday that the inflation rate so far this year has been higher than expected. The Federal Reserve will need to start cutting rates at some point, but there is no rush to do so. The precondition for rate cuts is that the Federal Reserve has “quite a bit of confidence” that the inflation rate will continue to return to the target of 2%.
The market expects a 25% probability of a rate cut in June. The next Federal Reserve interest rate policy meeting will be held from April 30th to May 1st. Despite the hawkish remarks from several Fed officials, data from CME’s FedWatch tool shows that the market expects a 96.8% probability of the interest rate remaining between 5.25% and 5.5% in May, with only a 3.2% probability 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 no change in the interest rate. The probability of a rate cut in September is 44.9%, while the probability of no action is 25.2%.
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