2024-04-12 22:27
Boston Fed President Collins said on Thursday that he expects to cut interest rates twice this year and expects it will take time for inflation to return to target levels.
Collins spoke to the media on Thursday, but the content was not released until Friday. “I currently still expect demand to start to slow down towards the end of 2024, which will help lower inflation later this year,” she said.
Collins made clear that the Fed will cut policy rates at some point this year, but uncertainty and risks surrounding inflation mean it cannot be rushed just yet. Moreover, strength in the labor market and the overall economy gives the Fed more time.
When it comes to the number of possible rate cuts from the Fed, Collins expects “about two” rate cuts in 2024. As for when the Fed will start cutting interest rates, Collins said “the data is still volatile, there’s still some noise, there’s a lot of uncertainty,” but said raising interest rates is not in her base case scenario.
Regarding the issue of resurgent inflation, Collins said that a series of inflation data at the beginning of this year showed that after price pressures fell rapidly last year, the final stretch of the road to achieve the 2% inflation target has become more challenging.
Data released on Wednesday showed that CPI increased by 3.5% year-on-year in March. This increase was slightly higher than economists’ previous expectations and higher than February’s 3.2%. The month-on-month and year-on-year increases in core CPI were also higher than expected.
Until this week, the mainstream view on Wall Street had been to start cutting interest rates in June, but the strong CPI report poured cold water on investors, and now the time for the first cut has to be reset. Meanwhile, economists at some major banks have lowered or completely eliminated forecasts for a 2024 Fed rate cut.
However, Fed officials still largely believe that a rate cut will be made, and Collins said in his speech that the inflation data means that the window for easing policy is now further away, noting that “the slowdown in economic activity may take longer than previously expected, and inflation will further and steadily return to our goals.”
Collins pointed out that monetary policy has indeed departed from the preset track, but he does not believe that interest rates will be raised. However, officials such as Fed Governor Bowman believe that if inflation stagnates or worsens, the Fed may have to raise interest rates again.
On Friday, Collins reiterated: “I’m very optimistic that we will see inflation come down, and current policy is moderately restrictive.”
Collins added that the Fed is now expected to cut interest rates later than previously expected, and that the U.S. election will definitely not affect the timing of the rate cut.
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2024-04-12 14:27:00
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