Federal Reserve's Mester "playing it straight": Rate cut time is near!
James Bullard, President of the Federal Reserve Bank of St. Louis, stated that the appropriate time for a rate cut is approaching, believing that inflation has returned to the 2% target track and that the labor market is no longer a risk for inflation. He pointed out that attention still needs to be paid to service and housing inflation, despite recent data boosting confidence in a decline in inflation. He also expects strong economic growth, with future interest rates potentially higher than pre-pandemic levels. Investors are predicting a 25 basis point rate cut in September, and Bullard supports a rate cut at the upcoming FOMC meeting
St. Louis Fed President Mester said he believes the Fed is approaching the right time to cut interest rates.
He said, now he believes that inflation has returned to the path towards the Fed's 2% target, and the labor market no longer poses a risk to inflation.
Mester said on Thursday in Louisville, Kentucky, "From my perspective, the risks to the dual mandate seem more balanced. Therefore, as we approach the upcoming meetings, a modest adjustment in restrictive policy may soon become appropriate."
He noted that service and housing inflation remain somewhat stubborn, and there is more work to be done on anti-inflation. However, he said, "Recent data has strengthened my confidence in the decline in inflation."
Regarding the labor market, he said that the labor market is no longer overheated, showing clear signs of cooling, but the level of layoffs remains low, and the job market no longer poses upward risks to inflation.
Mester refuted the view that "the Fed is lagging behind the situation." He pointed out that the U.S. economy is performing very well, and no economic recession is expected in the coming quarters. "The economic growth momentum is good, and the data does not support the view of a recession. I expect U.S. GDP growth in the second half of this year to be between 1.5% and 2%."
He pointed out that models show that future interest rates may be higher than pre-pandemic levels.
Mester joined other Fed officials who hinted at supporting rate cuts at the FOMC meeting on September 17-18.
Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that the year-on-year core CPI in the U.S. slowed for the fourth consecutive month in July.
Fed policymakers have resisted calls for aggressive rate cuts, as non-farm payroll growth significantly slowed in July following weaker-than-expected employment reports, pushing the unemployment rate to its highest level in nearly three years. Investors expect a 25 basis point rate cut in September, down from expectations of a 50 basis point cut after the July employment data was released.
Last month, policymakers kept rates unchanged but hinted that they were closer to cutting rates. Fed Chairman Powell said that a rate cut as early as the September central bank meeting might be appropriate.
Mester is the first Hispanic regional Fed president, having taken up the new position in April. His career includes executive positions at Tudor Investment Corp. and the New York Fed