Federal Reserve Governor Powell: Suitable for future rate cuts, but timing is uncertain

Federal Reserve Governor Cooke provided in-depth insights into the current monetary policy and future economic trends in her speech at the New York Economic Club. She believes that with inflation gradually under control, a rate cut will be appropriate at some point in the future, and she expects inflation to decline more rapidly in 2025. However, she did not disclose when the Fed will take action.

On Tuesday, June 25th, Cooke emphasized in her speech that the current monetary policy is fully capable of responding to any changes in the economic outlook. She stated:

"As inflation makes significant progress and the labor market gradually cools, reducing the level of policy constraints at some point in the future to maintain a healthy economic balance will be appropriate. However, the timing of any such adjustments will depend on how economic data evolves and the economic outlook and risk balance they reflect."

Cooke assessed the current monetary policy as "restrictive" and pointed out that this policy is putting downward pressure on total economic demand. Despite the economy showing resilience and the labor market remaining strong, the impact of high interest rates has begun to show. She emphasized:

"In particular, high mortgage rates have led to a slowdown in home sales and construction activity, and as home prices and borrowing costs rise, some Americans are facing financial pressure, leading to an increase in debt delinquencies. The current rise in delinquency rates has not yet posed a serious concern for the overall economy, but it is an issue that needs close attention."

Cooke expects:

" Inflation will slow significantly next year, housing services inflation will decline due to slower growth in new lease rents, core goods inflation may remain slightly negative, and core services inflation excluding housing will gradually ease."

She pointed out that the current labor market conditions are similar to those before the outbreak of the pandemic, tense but not overheated. She also mentioned that there is data indicating that last year's job growth may have been overstated and this situation may continue this year.

Earlier this month, the Federal Open Market Committee (FOMC) decided to keep the federal funds rate target unchanged at 5.25% to 5.5%. During the meeting, officials reduced their expected rate cuts for this year from 3 times to 1 time. Due to higher-than-expected inflation data at the beginning of the year, officials have become more cautious about rate cuts and more uncertain about when the Fed can achieve the 2% inflation target. Although some recent inflation data suggest easing price pressures, policymakers have remained cautious in predicting the timing of rate cuts given previous fluctuations.

While the market generally expects a rate cut in September, Federal Reserve Governor Michelle Bowman stated in an earlier speech on Tuesday that a rate cut is unlikely this year. She emphasized, "The uncertainty of the current economic outlook and the situation shown by the data indicate that we are in a favorable position to observe further developments." At the same time, some Fed officials also mentioned that the situation in the labor market is becoming increasingly important in their policy decisions, and any unexpected weakness in the job market could prompt them to lower short-term borrowing costs In addition, Cook also mentioned that there are some vulnerabilities in the financial system, but there are also important sources of resilience. Overall, the financial system does not seem to be in a state where any impact would be "excessively amplified"