The US economic data is laying the foundation for early interest rate cuts, but Federal Reserve officials have always been hawkish - an increasingly apparent divergence at the macro level in the US in recent weeks. And this phenomenon, after experiencing this week's Federal Reserve interest rate decision, seems to have not changed
Federal Reserve officials, who had been silent for over a week before the interest rate meeting, began delivering their first public speeches after the interest rate resolution last Friday. From the speeches of the two Federal Reserve officials who were the first to appear - Cleveland Fed Chairman Mester and Chicago Fed Chairman Goolsby - it can be seen that these two officials, who originally held vastly different positions within the Federal Reserve, have revealed quite similar information: they still need to see more positive inflation data in order to potentially initiate interest rate cuts!
Mest completes his final resting journey
Cleveland Federal Reserve Chairman Mester said last Friday that despite the latest data being encouraging, she still believes that the inflation risk in the United States is biased upwards.
During an interview that day, Mester pointed out that the median of the latest forecast by Federal Reserve policy makers, which is to cut interest rates only once this year, is "quite close" to her own economic outlook.
Mester also said, "I think the risk of inflation is still on the rise. I think the risks in the labor market are two-sided."
The outgoing Cleveland Fed chairman said that the lower than expected May CPI data in the United States was a "gift", but she added that she hopes to see several similar reports before truly lowering interest rates.
The data released by the US Department of Labor last Wednesday showed that the year-on-year and month on month performance of the four groups of overall and core CPI was lower than expected. Among them, the US CPI remained unchanged month on month in May, with an expected increase of 0.1%; An increase of 3.3% year-on-year, also lower than the estimated value of 3.4%; Excluding energy and food, the core CPI increased by 0.2% month on month, with an expected increase of 0.3%; The core CPI increased by 3.4% year-on-year, with an estimated value of 3.5%.
"In the past two years, we have made quite good progress on the issue of inflation. However, the inflation rate is still too high," Mester said. "There is still more work to be done on the inflation issue to make people believe that inflation is on a downward trajectory to 2%."
Meister pointed out that she did not update her forecast after the CPI data released a few hours before the interest rate decision.
She said, "Considering all the progress we have made in inflation, I believe we do need to see more data points to truly tell us, 'Okay, we can now be very confident that inflation is in a downward trend, so we can start reducing policy constraints.'"
Mester also stated that his forecast for long-term interest rates is 3%. According to the latest interest rate chart, after a slight increase in March, Federal Reserve officials further raised their median expectation for the long-term interest rate to 2.8% in June, indicating that they no longer expect interest rates to return to pre pandemic lows.
After serving at the Cleveland Federal Reserve for a full decade, Mester is about to officially step down as the regional Fed chairman at the end of this month. Her successor will be Beth Hammack, a senior banker at Goldman Sachs Group.
Gullsby: May CPI was very good, but this is only one month's data
In addition to Maester, who has been relatively hawkish in the past, the current dovish figure within the Federal Reserve - Chicago Fed Chairman Gullsby - also stated at another event late last Friday that the May CPI was "very good", but this is only one month of data.
Gullsby said at an agricultural economic summit held in Ankeny, Iowa that he breathed a sigh of relief after data showed inflation cooled in May, but he still hopes to see similar data performance in "more months" before truly lowering interest rates.
Gulsby said, "We have made significant progress in reducing inflation rates in the past 18 months. Inflation rates have fallen back to their current levels, and if we could see more monthly indicators similar to a decline in inflation, our feeling would be much better."
The Federal Reserve kept the target range of the federal funds rate unchanged at 5.25% -5.5% last Wednesday. Federal Reserve Chairman Powell reiterated once again that any interest rate cuts will only be implemented when the Fed has more confidence that the inflation rate is moving towards the Fed's 2% target, or when there is an unexpected deterioration in the labor market.
Regarding the current economic situation in the United States and the focus of the Federal Reserve, Gullsby stated that the Federal Reserve is closely monitoring the health of the economy. At present, the US economy has shown some signs of pain, such as an increasing loan default rate, but it has not yet reached the level associated with economic recession.
He said that if inflation continues to ease and the Federal Reserve can lower interest rates, it is expected that the Federal Reserve will completely avoid an economic recession.