Federal Reserve officials emphasize the need for more evidence of cooling inflation and remain cautious about the timing of interest rate cuts

According to the Wise Finance app, Federal Reserve officials unanimously emphasized on Tuesday the need for more evidence of cooling inflation before cutting interest rates. Several officials also provided insights on the possible timing of rate cuts.

Federal Reserve Board member Adriana Kugler stated that if the economy develops as she expects, a rate cut by the Fed "later this year" may be appropriate. St. Louis Fed President Alberto Musalem, in his first major policy speech, indicated that it may take "several quarters" of economic data to support a rate cut. New York Fed President John Williams and Richmond Fed President Thomas Barkin were unwilling to provide a specific timeframe for rate cuts, but all officials emphasized the crucial role of economic data in shaping future policy.

Several other Fed officials also made remarks. Dallas Fed President Lorie Logan said, "We need to see several months of data to truly have confidence in our outlook. We are moving towards the 2% inflation target." Boston Fed President Susan Collins stated, "It is still too early to judge whether inflation will sustainably return to the 2% target."

The Fed does not appear to be in a rush to cut rates. Just last week, the latest dot plot released by the Fed showed that policymakers on average predict only one rate cut this year, lower than the three cuts forecasted in March. The unexpected rise in inflation in the first quarter of this year has caught Fed officials off guard, as inflation was previously expected to rapidly decline in the second half of 2023. Despite encouraging recent inflation data, policymakers remain cautious.

Boston Fed President Susan Collins reiterated this point on Tuesday, emphasizing the importance of not "overreacting to one or two months of positive news." When asked whether she is considering one or two rate cuts this year given the current situation, she said, "I can imagine both scenarios playing out."

The cautious stance of policymakers was particularly evident in the dot plot released last week, with four officials expecting no rate cuts in 2024. Musalem stated, "I need to observe a period of favorable inflation and demand slowdown, supply expansion, before I can be sure that a rate cut is appropriate." "These conditions may take several months, more likely several quarters."

Recent data has shown a mixed economic outlook. While job growth remains strong, consumers are still restraining spending, and inflation has cooled off somewhat after unexpectedly accelerating in the first quarter. Kugler stated, "I believe that the current monetary policy stance is sufficiently tight to help cool the economy and bring the inflation rate back to 2% in the event of a sharp contraction in economic activity or a severe deterioration in the labor market."