A "big hawk" flies out: A Federal Reserve governor says there will be no rate cut this year, while another is concerned about rising inflation expectations

According to the financial news app Zhitong Finance, Michelle Bowman, a member of the Federal Reserve Board, stated at an event hosted by a London think tank on Tuesday that there will be no interest rate cuts before the end of this year.

Bowman pointed out in her speech that significant progress had been made in slowing inflation in 2023, but this progress stalled in the first half of 2024. She stated that it is currently impossible to predict what will happen next.

She said, "Inflation in the United States remains high, and I still see many factors that pose upward risks to my inflation expectations. Firstly, further improvements on the supply side are unlikely to continue to reduce inflation, as supply chains have largely normalized, labor force participation has stabilized in recent months below pre-pandemic levels, and the open immigration policy that has added millions of immigrants to the U.S. in recent years may become stricter."

Bowman also noted that the recent easing of financial conditions in the U.S. and unexpected geopolitical disturbances abroad could also increase inflation. Additionally, due to a nationwide housing shortage, housing costs are unlikely to decrease.

Bowman is a voting member of the Federal Open Market Committee (FOMC), the monetary policy-making body of the Federal Reserve. She has been a member of the Federal Reserve Board since 2018. She stated that the current level of interest rates will need more time to slow down price growth. "My basic expectation remains that U.S. inflation will return to the FOMC's 2% target, while the federal funds rate target range will remain at the current level of 5.25% to 5.5% for some time. If upcoming data indicate that inflation is sustainably moving towards our 2% target, then gradually lowering the federal funds rate target appropriately to prevent monetary policy from becoming too tight. However, we are not yet at the point where it is appropriate to lower the policy rate."

She also pointed out that an acceleration in inflation could bring rate hikes back into the discussion. "If inflation progress stalls or even reverses, I would still be willing to raise the federal funds rate target range at future meetings. Lowering our policy rate too early or too quickly could lead to an inflation rebound, which may require further increases in the policy rate in the future to bring inflation back to 2% in the long run."

Since July 2023, the FOMC has kept the federal funds rate target within the range of 5.25% to 5.5%. On Monday, futures prices indicated a close to 70% probability that the committee would cut the target by a quarter point at the September meeting. Futures show that by the end of 2024, the probability of two rate cuts is the highest.

On the same day, another Federal Reserve Board member, Lisa Cook, expressed optimism about the continued progress in reducing inflation in the U.S. this year, which could open the door to rate cuts. However, she also pointed out that this scenario may not necessarily occur. She is monitoring signs of rising inflation expectations, which could keep the Fed from changing rates for a longer period, or if the labor market cools further, this could accelerate the timeline for rate cuts.

In her speech at the New York Economic Club on Tuesday, she said, "As inflation progresses significantly and the labor market gradually cools, it will be appropriate to lower policy constraints to maintain a healthy economic balance. The timing of any such adjustments will depend on the development of economic data and their impact on economic outlook and risk balance "

Cook is a voting member of the Federal Open Market Committee (FOMC) and has been serving on the Federal Reserve Board since May 2022.

She noted that if sustained price increases lead to a rise in long-term inflation expectations, interest rates may need to remain restrictive for a longer period. On the other hand, if the economic and labor market downturn is faster than expected, it may mean that the Fed will further ease policy.

The Personal Consumption Expenditures Price Index (PCE) is the Fed's preferred measure of inflation, which fell to below 3% in the fourth quarter of last year after exceeding 7% annual growth in 2022. Progress in reducing inflation for 2024 has stalled so far: the PCE price index rose by 2.7% year-on-year in April. Data for May will be released on Friday.

Cook stated that she expects inflation to further slow down in the future, but noted that certain categories such as housing inflation will stubbornly remain above the Fed's 2% annual target. With improvements in the supply chain, goods inflation has decreased, and most scattered data shows that consumers are resisting price increases and may opt for cheaper alternatives.

She focuses on monthly inflation rates rather than year-on-year rates, as comparisons for the remainder of 2024 may become challenging compared to relatively low inflation readings last autumn.

She said, "My forecast is that as consumer resistance to price increases is reflected in inflation data, the inflation rates for three and six months will continue to decline on a bumpy path." "I expect inflation for the remaining time this year to remain roughly stable, with monthly data possibly resembling favorable readings in the second half of last year."

As for the Fed's other dual mandate of ensuring price stability and maximum employment, Cook said she believes the job market is "tight but not overheated." She pointed out that the ratio of job openings to unemployed workers is returning to pre-pandemic levels; the rate of people quitting is decreasing; and wage growth is also slowing down.

Cook is optimistic that investments by companies in intellectual property, software, and other new equipment today will translate into higher employee productivity in the future.

She said, "Productivity growth is volatile and difficult to measure, but if it remains strong, faster economic growth rates may not trigger inflation. I believe the adoption of artificial intelligence technology is a potential important source of productivity growth, and it should be remembered that breakthroughs such as effective generative artificial intelligence take time to fully realize their potential and spread throughout the economy, requiring additional investment to be effective."