Investors are growing concerned that the central bank may reduce the number of interest rate cuts this year due to closely watched economic data and mixed comments from some Federal Reserve officials.
For traders, the possibility of one or two rate cuts in 2024 appears more likely than the median of three that Fed officials estimated at their last meeting in March. And traders have been lowering the probability of a first rate cut in June, which now stands at about 58%.
The concerns come after Friday's strong labor data showed that while the U.S. economy added more jobs than expected in March, the unemployment rate fell and wage growth remained strong, with the labor market weaker than many economists expected. This occurred as the company's footing was shown to be solid.
Just hours later, Dallas Fed President Rory Logan poured more water on short-term hopes for monetary easing.
“I think it's too early to think about cutting interest rates,” he said in a speech on Friday. “We will need to see further uncertainty removed about what economic path we are on.”
Federal Reserve President Michelle Bowman also voiced concerns on Friday, even saying the Fed could have to raise rates at a future meeting if inflation progress stalls or reverses. But his basic outlook is that the Fed will cut rates again this year.
Dana Peterson, chief economist at the Conference Board, said on Yahoo Finance Live that the Fed “has a tough few months ahead of us in terms of being confident that we can start cutting rates.”
Some Fed officials, including Jay Powell, issued new assurances this week that the outlook remains unchanged.
In his speech Wednesday, the Fed chairman reiterated his claim that central bank officials expect to cut interest rates “at some point” this year.
It was also the second time in a week that he has stressed that economic conditions remain largely unchanged, despite inflation data at the beginning of the year being better than some expected.
Further confidence came from comments from Cleveland Fed President Loretta Mester and San Francisco Fed President Mary Daly, who stuck to their forecast for three rate cuts in 2024, which echoed recent comments from Chicago Fed President Austan Goolsby. It was the same as another prediction.
But not all Fed officials spoke from the same script.
Atlanta Fed President Rafael Bostic predicted only one rate cut in the fourth quarter, and Minneapolis Fed President Neel Kashkari suggested the Fed may not even cut rates “if inflation remains flat.” .
Dallas Fed President Logan said Friday that he believes there is a “significant risk to the continued development” of inflation after stronger-than-expected headlines in January and February. “We are increasingly concerned about the upside risks for investors,'' he said, giving investors further reason to be concerned. Outlook. “
He said the main risk was that “inflation stalls and is unable to follow the predicted path of a full recovery to 2% in a timely manner”.
Fed Director David Bowman pointed out the upside risk to housing services inflation, based on the outlook that in addition to low housing inventory, a strong job market could lead to an increase in demand for services.
“If future statistics continue to show that inflation is persistently moving toward the 2% target, monetary policy may eventually become overly restrictive,'' Bowman said in a speech in New York. “It would be appropriate to gradually lower the federal funds rate to prevent this.”
“However, we have not yet reached the point where it is appropriate to cut policy rates, and we continue to see many upside risks to inflation.”
Bowman also said structural changes in the economy, such as increased demand for investment, could lead to the need to raise interest rates. That could mean fewer cuts may be needed to bring the policy rate to neutral (a rate that officials believe neither promotes nor slows growth).
Marvin Lo, senior global macro strategist at State Street, said on Yahoo Finance Live that the disparity in comments among Fed officials reflects the “opinion'' on the outlook for a rate cut in 2024, which was posted at the March meeting. “It reflects the division of society,” he said.
At the March meeting, nine officials expected three rate cuts this year, while five officials believed two cuts were necessary. Two officials predicted one cut, and two officials predicted no cuts.
“Everyone is going to be in a camp where they can point to something that keeps them believing that,” Roe said.
But Lowe said the prospect of zero interest rate cuts is “not a widespread view” within the Fed, calling Kashkari “a bit of an outlier.”
“I don't think we're there yet,” Low said of pushing back the first interest rate cut until June.
But there is no question that most Fed officials are urging caution as they continue to evaluate the data.
Richmond Fed President Thomas Barkin said Thursday it would be “prudent” for the central bank to move slowly and seek more certainty about the path of inflation.
“No one wants another round of inflation,” Barkin said in a speech at the Richmond Home Builders Association.
“Given the strength of the labor market, there is time for the clouds to clear before we begin the process of lowering rates.”
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