Officials of the Federal Reserve in the United States decided during the meeting at the end of April and beginning of May that, given the recent months of consistently unsatisfactory inflation data, they would maintain the current interest rate level for a longer period than previously expected, and even did not rule out further tightening of policies. In addition, Goldman Sachs CEO David Solomon predicts that considering government spending and investments in artificial intelligence, the US economy is showing resilience and the Fed will not lower interest rates this year.
Title:
US Federal Reserve Officials Decide to Delay Rate Hike, Tightening Policy Not Excluded
Subtitle 1:
Waiting for rate cut may take longer than expected
Subtitle 2:
CPI slowdown opens door for rate cut! Wall Street bets on Fed launching rate cut as early as July, no later than September
Officials of the US Federal Reserve (Fed) reached a conclusion during the meeting on April 30th to May 1st, as stated by Nick Timiraos, a journalist from The Wall Street Journal, also known as the “mouthpiece of the Federal Reserve.” After several consecutive months of disappointing inflation data last month, they decided to maintain the interest rates at the current level for a longer period than previously expected.
According to the meeting minutes, although officials still believe that interest rates are high enough to moderate the economy and inflation, they expressed uncertainty about the extent to which interest rates would curb economic activity and price pressures. Some officials even mentioned that if inflation risks become a reality, they would be willing to further tighten policies, as this action would be appropriate.
Boston Fed President Susan Collins stated on the 21st that she needs to see more evidence that price pressures are moving towards the central bank’s 2% target before considering a rate cut, otherwise there may be more restrictive measures.
Timiraos mentioned that although price pressures significantly eased in the second half of last year, leading Fed officials to suggest in March that they might be ready to start cutting rates in a month or two of further mild inflation, a series of data from the first quarter showed that price pressures in the economy are brewing. Unless there is an unexpected weakening in the labor market, the Federal Reserve will have to postpone any deliberations on rate cuts in the next few months.
After the meeting, the inflation data for April showed that price pressures did not intensify again. Timiraos stated that this provided additional comfort to the central bank that there was no need to resume rate hikes. He pointed out that Federal Reserve Governor Christopher Waller stated in a speech in Washington on Tuesday that the possibility of rate hikes is currently very low. However, Waller also warned that:
Timiraos stated that Fed officials are currently trying to address two major risks. Firstly, if policy is relaxed too early, it may stimulate the rise in consumption, investment, and asset prices, which may hinder inflation from falling back to their target of 2%. The other risk is that if they wait too long to find evidence that tightening policies are slowing down the labor market, it may force them to implement more traditional rate cut measures, which often coincide with the beginning of an economic recession.
Waller stated on Tuesday that “we have not seen any signs that staying in this state for three to four months would lead to a major economic downturn.” This indicates that he believes the current policy state will not have a significant impact on the economy even if it continues for a longer period of time, and the uncertainty of whether it will occur this year remains.
On Tuesday, the S&P 500 and Nasdaq indices reached new historic highs when the US stock market closed. Federal Reserve officials maintained a cautious attitude, possibly to avoid excessively high market prices that could lead to potential asset bubbles.
Goldman Sachs CEO David Solomon stated at an event at Boston College on Wednesday that due to government spending and investments in artificial intelligence infrastructure, the US economy is showing resilience, and he expects that the Federal Reserve (Fed) will not lower interest rates this year. Solomon stated:
However, Goldman Sachs President John Waldron mentioned at a conference of the Investment Company Institute in Washington that there is significant controversy within the company regarding the pace of rate cuts. Individuals who frequently interact with clients and CEOs are more cautious and point out that Goldman Sachs has not formed a unified view.
Finally, Solomon pointed out that considering the economic weakness and structural demographic issues in Europe, there is a greater possibility of interest rate cuts by the European Central Bank this year.